Good news from the FDIC: less than 5% of US households do not have a bank account, down from 8% a decade ago and the lowest level since the agency began tracking it.
The story of how around 5 million households entered the banking system since 2011 is instructive as we look at both how to keep them and how to reach the remaining 6 million still out of it, 70% of whom are households of color. FDIC data shows that 11% of black households and 9% of Hispanic households are unbanked, compared to 2% of white households.
It’s also time to start thinking about what happens to people after they open an account. A bank account is a necessary ingredient for achieving financial health, as demonstrated by the fact that, according to the Financial Health Pulse® 2022 US Trends Report, only 3% of unbanked people are financially healthy. That said, a bank account alone is not enough to ensure a positive trajectory: only 36% of bank account holders are in good financial health.
The issue of the unbanked first hit the radar in the United States in the 1990s, when the federal government first decided to try to reduce the volume of paper checks it sent to recipients each month. social security and disability benefits. As the Treasury Department attempted to move to direct deposit of benefits, it found that 10 million recipients did not have bank accounts.
This understanding eventually led Congress to mandate the FDIC to begin estimating the number of unbanked households. When the FDIC launched its biennial national survey of unbanked and underbanked households in 2009, it found that 7.6% of Americans did not have a bank account. In 2011, this figure would reach a record level of 8.2%. It has been declining since, reaching 4.5% in 2021.
Survey respondents describe a range of reasons for not having an account that have remained stubbornly constant over time: they don’t have enough money to meet minimum balance requirements or they think the fees are too high or unpredictable; they avoid banks because of confidentiality issues or a lack of trust; banks do not offer the services they need or are badly located; they have had bad experiences with banks in the past; they do not have the identification required to open an account.
It took a combination of a strong economy, lower cost accounts, bankable times like natural disasters and the pandemic, and advances in technology to enable so many to overcome these challenges over the past decade.
The economy is probably the main driver. The FDIC finds that about half of the decline in the unbanked rate since 2011 is due to changes in household socioeconomic status, such as increased income and more education, driven by a robust labor market. In addition, the government finally mandated direct deposit for federal benefits in 2013, and the Treasury Department developed campaigns and products to encourage people to open accounts.
At the same time, coalitions of banks, community groups and city governments began to form, first in San Francisco and then across the country, to develop quality standards for bank accounts. The Bank On movement’s account standards – low cost, low minimum balance requirements, no overdrafts – have addressed many of the concerns voiced by the unbanked. The Cities for Financial Empowerment Fund then created a certification process for banks and credit unions, and today 300 depositories – including the largest banks – offer accounts that meet the standards.
Fast forward to the pandemic. The FDIC and the CFE Fund leveraged this infrastructure and created the #GetBanked campaign to encourage unbanked people to open accounts to receive their government stimulus payments electronically and avoid having to go to a physical place to deposit or cash a paper check. Technological advancements over the past decade have allowed consumers to open accounts through online and mobile platforms and manage their money virtually, making it more convenient for consumers and more profitable for banks.
These efforts appear to have worked. In the latest FDIC survey, just over a third of households who opened a bank account between March 2020 and June 2021 said receiving a government benefit contributed to their decision to open the account.
However, just as the promise of government assistance led to account openings, job loss and lower income were the reasons cited by about one in five of those who closed an account. As the economy continues to create jobs, some companies have already started laying off workers in anticipation of a possible recession. An important task now is to keep the new ones cashed, cashed. In the same way that lenders have allowed borrowers facing the pandemic to defer mortgage payments, it may be time to think about offering a temporary break in monthly checking account fees to consumers who have been made redundant and do not have more incoming direct deposit.
The pandemic has created a highly visible national bankable moment. Reaching the remaining unbanked households may require a more intentional geographic strategy. Unbanked rates vary by state, ranging from a low of 1.2% of the population in Utah to a high of 11.1% in Mississippi. FDIC data allows for analysis of states and metropolitan areas with the greatest concentration of unbanked households representing different racial and ethnic communities. Lack of money is usually the root of the problem, and the ramp-up of dozens of Guaranteed Basic Income pilot projects in communities across the country could represent the next big bankable moment.
But while significant work remains to be done to make banking access universal, now that the vast majority of American households have a bank account, it’s time to set new goals to achieve the outcome we ultimately seek. – the financial health and well-being of all. A critical starting point is learning from the FDIC’s experience and rigorously measuring financial health. As the FDIC has successfully demonstrated, what gets measured gets managed.
Note: Jennifer is a member of the FDIC Advisory Council on Economic Inclusion.