By: Mary Atchison
August 12, 2010
Like many of us in Larimer County, when I get paid by my employer, I never see the paycheck.
The money is seamlessly and automatically transferred to my bank account on a scheduled day each month. I am then able to go online and see that the deposit has arrived and that I have the funds available for my use.
My paychecks have not always arrived that way, but during the past 10 or 15 years, the banking industry and computers have made it very easy for all of us to manage our money.
They have developed various products that allow us access to short-term loans, credit, quick transfers from savings to checking ... and on and on. All of these products, when used properly, make our lives easier and worry free.
For many families, this process is not so simple. Some people actually have to pay simply to have access to their cash.
According to the FDIC, an estimated 7.7 percent of U.S. households, approximately 9 million, are unbanked, meaning they do not have a checking or savings account at a bank. At least 17 million adults reside in these unbanked households. Additional unbanked adults might also reside in other households.
Also, an estimated 17.9 percent of U.S. households, roughly 21 million households accounting for 43 million adults, are underbanked. The underbanked are those households that have a checking or savings account but rely on alternative financial services.
Specifically, underbanked households have used nonbank money orders, nonbank check-cashing services, payday loans, rent-to-own agreements or pawn shops at least once or twice a year, or refund anticipation loans at least once in the past five years.
A 2009 FDIC survey found 64 percent of the unbanked work full-time, steady jobs, and 24 percent work part time, meaning the unbanked are already living a life dependent on paper checks, and they need an affordable way to access their money.
According to a report by the National Conference of State Legislatures, check cashers are often sought out as an alternative, and an average of $40 per paycheck is charged. During the course of a lifetime, a full-time worker could spend $40,000 in check-cashing fees that would have been saved by using a low-cost checking account.
While the benefits of a banking relationship are clear, there are reasons why people do not access mainstream banking services.
They might have grown up in a family where banks were not used, and so they do not have any experience with them and have little to no understanding of how they work. Or they might have had a very bad experience with a bank, and so they feel angry or intimidated by the thought of putting their money in a bank.
For people living in poverty, every penny counts.
Therefore, Pathways Past Poverty believes that overcoming obstacles to accessing free or very low-cost banking services is an important step toward financial self-sufficiency.
Beginning in early fall, we will be piloting a program called Opportunity Banking. Two local banks and one credit union have volunteered to participate in this program that pairs an unbanked individual or family with a trained community volunteer and a trained banker. During the course of a year, the volunteer and banker will familiarize the person with the bank, spend time talking about banking options, meet regularly to answer questions and solve problems, all developing a positive connection to the bank.
At the end of the year, the goal is to have an established, positive relationship with the bank and a strong understanding of how to utilize mainstream banking services. Ultimately, our goal is to increase savings and decrease debt even for those with smaller paychecks, making their lives easier and more worry free.