August 31, 2010
A small percentage of American consumers are currently considered underbanked or unbanked, but new reports reveal that this number may grow as more individuals turn their backs on traditional banking.
Following the subprime mortgage crisis, many lenders dramatically tightened their financing practices and standards - a move that continues to this day. As a result of heightened lending criteria and falling credit scores, many Americans are finding other financial portals for their money needs. A recent Fidelity study revealed that the number of Americans making hardship withdrawals from their retirement funds has grown significantly, despite the 10 percent penalty that is applied.
"The majority of participants continue to make saving through their workplace plans a priority," Fidelity Investments workplace investing president James MacDonald said. "However, the current economy has forced some workers to borrow from their 401(k) accounts in order to pay for critical living expenses, ultimately jeopardizing their future retirement."
Others are relying on resources closer to home, borrowing from friends, family members and even strangers. A new trend revolving around peer-to-peer borrowing has grown in popularity and changed then lending game. According to Fortune Magazine, more consumers are using these websites to borrow funds ranging from $100 to $250,000 to meet their tuition, mortgage and medical bill obligations. Borrowers are still held to certain credit requirements, but they tend to be less restrictive than those imposed by banks and other financial institutions.
A small number of Americans desperate to save their homes from foreclosure have come up with innovative ways to save money - from selling family recipes, holding bake sales and offering classes out of their homes.