More Idahoans have bank accounts, but underbanked population soarsNov 1st, 2016 | By Sarah Glenn | Category: Business Features, Featured
By Sarah Glenn/For the Journal
POCATELLO – It’s not cheap being poor.
The pinch that comes with a checking account maintenance fee or overdraft charge can make or break someone on the edge. And while the cost of banking, or the ghosts of past bad banking situations, scare some away from opening accounts altogether, the number of unbanked people in Idaho is shrinking.
In October, the FDIC released its National Survey of Unbanked and Underbanked Households. In Idaho, 3.6 percent of the population does not have any bank account; that number was 5.4 percent in 2013.
“I think there is a perception that banks are going to charge and people haven’t checked around to see what various banks offer,” said Amy Rhoads, President and CEO of Citizens Community Bank. “They might not be used to having people to talk to and understand their situation.”
The survey also took a look at those who the FDIC calls “underbanked” – people who have a checking or savings account but often rely on unsteady financial resources such as payday loans and pawn brokers to meet their immediate needs. In Idaho, 23.1 percent of the population is underbanked – a jump from the 19 percent who were underbanked in 2013. The national average is 19.9 percent or 24.5 million people.
“Developing a relationship with a bank helps consumers build assets and create wealth, makes them less susceptible to discriminatory or predatory lending practices, and can provide a financial safety net against unforeseen circumstances,” FDIC Chairman Martin Gruenberg said. “The decline in the share of households who do not having a banking relationship is a positive development, and the FDIC will continue working to help ensure households have access to safe, secure, and affordable banking services.”
How Idahoans interact with banks can tell much about their financial situation, the FDIC said in its report. About one-fifth of unbanked households reported saving for unexpected expenses or emergencies in the past 12 months; that leaves four-fifths of the unbanked population that has no cash safety net.
Of those who were unbanked and saved, 67.8 percent reported keeping emergency savings in the home, or with family or friends. This contrasts sharply with the 88.2 percent of fully banked households that deposited their emergency savings in a bank account, where the funds are secure, guaranteed against loss, have the potential to generate earnings, and may be used for other purposes, such as securing access to mainstream credit.
According to Rhoads, the cycle of unbanked to underbanked can start early with a few poor financial decisions. Before opening an account, many banks run checks to see if the new customer has unsettled debts or obligations to another checking account at another bank.
“These checks can be a major barrier,” Rhoads said.
Often these overdrafted accounts and unmet obligations begin with predatory lending – the underbanked person’s nemesis.
“They are going to the payday loans, using the prepaid cards with fees and it really isn’t cheaper to do things that way,” Rhoads said. “Then you get into an overdraft situation where they can’t open an account anywhere.”
The cycle of underbanked to unbanked then continues to perpetuate itself. However, Citizens Community Bank is working to break that cycle for many.
“For many of our customers though, we go with the premise that they can start fresh,” Rhoads said.
Citizens Community Bank is also working to decrease the unbanked and underbanked population in Idaho by hosting financial literacy programs in local high schools and offering the online Ever5 curriculum the the bank’s website. The bank also has relationships with the non-profit Consumer Credit Counseling and it working with SEICA to help Idahoans get the financial help they need.
“It takes time and money to climb out of that situation,” Rhoads said. “It is unfortunate to see people in that situation and we are hoping to find an avenue to help that.”
Looking nationally, the number of Americans without a bank account dropped sharply – more than analysts expected.
Seven percent of U.S. households were unbanked in 2015. That was the lowest share in the survey’s history and a decrease from 7.7 percent in 2013 and 8.2 percent in 2011. While improving economic conditions during the two years through the 2015 survey account for part of the drop in the unbanked rate, the rate fell further than expected based on economic factors alone.
The decline in the share of unbanked households was broad based. Unbanked rates among black and Hispanic households, for example, fell about 10 percent. The unbanked rate for black households dropped from 20.6 percent to 18.2 percent, and for Hispanic households it fell from 17.9 percent to 16.2 percent. Households with very low incomes (less than $15,000 per year) and households headed by individuals without any college education also saw their unbanked rates fall significantly.
Still, not all demographic groups saw decreases. Notably, unbanked rates for Asian households increased during the two-year period from 2.2 percent to 4 percent.
Other key findings in the survey include:
- Overall, 56.3 percent of households saved; that is, they set aside money in the previous 12 months that could be used for unexpected expenses or emergencies, even if the funds were later spent.
- Some 13.7 percent of households exhibited potential demand for consumer credit from banks, and half of these households indicated that they had stayed current on bills in the prior 12 months. Households that applied for, but were denied, bank credit; refrained from applying for credit because they thought they might not qualify; or relied on alternative financial service providers for credit were considered to have potential demand for bank credit. This is the first time this information was collected in the survey.
- Between 2013 and 2015, the proportion of households that used a prepaid card in the past 12 months increased from 7.9 percent to 9.8 percent. This growth occurred broadly across socioeconomic and demographic groups. Consistent with results from the 2013 survey, prepaid card use in 2015 was higher among lower-income households, less-educated households, younger households, black households, and working-age disabled households.
- The majority of unbanked households said they think that banks have no interest in serving households like theirs, and a significant share of unbanked households said they do not trust banks.
The FDIC survey began in 2009 and is conducted every other year in partnership with the U.S. Census Bureau. Additional survey findings, custom tables, and information from all four years of survey data is available at economicinclusion.gov