Yesterday, the FDIC released a new report detailing the results of the 2011 Survey of Unbanked and Underbanked Households (“Households” Survey). The first survey was done back in 2009. The FDIC is required by legislative mandate to survey banks’ efforts to serve the unbanked and will continue doing the Households survey every two years. Key findings from the report, as summarized by the FDIC, are:
- 8.2 percent of U.S. households are unbanked. This represents one in 12 households in the nation, or nearly 10 million in total. Approximately 17 million adults live in unbanked households.
- 20.1 percent of U.S. households are underbanked. This represents one in five households, or 24 million households with 51 million adults.
- 29.3 percent of households do not have a savings account, while about 10 percent do not have a checking account. About two-thirds of households have both checking and savings accounts.
- One-quarter of households have used at least one alternative financial service (AFS), such as non-bank check cashing or payday loans in the past year, and almost one in ten households have used two or more types of AFS products or services. In all, 12 percent of households used an AFS in the past 30 days, including four in 10 unbanked and underbanked households.
The details of the Households survey were presented to the FDIC Advisory Committee on Economic Inclusion (ComE-IN). The analysis by FDIC researchers Keith Ernst, Yazmin Osaki, and Susan Burhouse offered four implications of the survey results. First, the Households survey revealed lots of diversity among un-and underbanked households suggesting that economic inclusion strategies may be more effective if they are based in a deeper understanding of consumer segments. Second, having a bank account does not guarantee long term participation in the banking system as half of unbanked households previously had bank accounts. Third, unbanked consumers who had bank accounts in the past appear to have more positive perceptions on having an account and rely less on non-bank financial services. Finally, consumers that use non-bank financial services perceive them to be more convenient, faster, less expensive, or less difficult to access (in terms of qualifying for the products) suggesting that banks may need to more clearly demonstrate the value of a bank account to non-bank financial services users to win their business.
The high percentage of households without a savings account (29.3%) was flagged as an opportunity area for banks in the presentation and subsequent discussion. The top reason unbanked respondents cite for not having a bank account is because they “do not have enough money.” A 2003 survey of lower income consumers that asked a similar question for savings accounts (in an open-ended manner) suggests that this could mean that consumers think they “don’t have any extra money” or “do not have the amount of money that banks require to open an account.” Unbanked consumers interviewed by the Kansas City Federal Reserve in 2009 revealed that the respondents felt they needed $5,000 to justify getting a savings account. As the FDIC researchers pointed out, it’s interesting that consumers still perceive savings accounts are out of reach because there has been a concerted effort to get more banks to offer no or low-minimum balance savings accounts through the FDIC’s Model Safe account pilot. In fact, there have been a number of pilots working with banks and credit unions to provide affordable savings accounts to low-income consumers in addition to the general availability of similar accounts from many local banks and credit unions across the country. So why don’t more consumers have savings accounts?
Reasons for lower than expected take-up of low-cost savings accounts include a lack of attentiveness to building the attractiveness and awareness of savings accounts. We recently hosted an event discussing how financial institutions can build better savings products for low-income consumers. Sessions at the upcoming Assets Learning Conference and the FDIC Consumer Research Symposium will also highlight new research to help inform the design of savings accounts.