Unbanked and Under-banked Communities

Unbanked and Under-banked Communities

This paper will focus upon the unbanked and under-banked individuals and communities, the challenges that they confront, and what are some potential resolutions that can be provided to mitigate the trials and tribulations of these communities.

Prior to delving into the world of unbanked and under-banked people, I believe it is necessary to define what we mean when we refer to someone as unbanked or under-banked. Furthemore, I will explain the significance of the Community Reinvestment ACT and its pivotal role in striving to improve the relationships between banks and the unbanked and under-banked.

An individual or groups of individuals can be considered unbanked when they do not use banks or credit unions to conduct their financial transactions. These individuals do not have a checking or savings account. According to a FDIC survey of unbanked and under-banked households, 8.2 percent of US households are unbanked- in other words, 1 in 12 households or 17 million adults live in unbanked households.

On the other hand, under-banked individuals typically have a checking or savings account, but in addition to traditional bank services, they also use alternative financial services, such as non-bank money orders, pay-day loans, rent-to-own agreements and pawn shops. According to the FDIC survey mentioned above, 20.1 percent of US households are under-banked, that represents 24 million households or 51 million adults.

Unbanked and under-banked individuals typically share certain common characteristics such as: low-income individuals and families, not possessing a formal education (or having less education than other groups), young adults and households that are headed by women. The unbanked a...

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...to the same extent as the unbanked. The unbanked and under-banked are the ones that cannot afford alternative financial services, yet they are practically forced into using them due to their inability/ unwillingness to deal with banks.

As mentioned above, lack of understanding of the U.S banking system often leads individuals not to trust banks, thereby having to rely on alternative financial services. A prime example would be Sarah Yeats ( real name withheld), a professional bartender fully employed since high school. Sarah opened a bank account while in college and inexperienced in check register management, she bounced a couple of checks in quick succession. ( Rotter, Kimberly).

John Griego of Albuquerque, NM, shares a similar story. John states that he has difficulty balancing checking accounts, thus he tends to bounce checks.( Rotter, Kimberly).