Bank accounts key to helping needy families
St. Louis Post-Dispatch (IDA)
By: Lisa Brown
November 2, 2012
When homeless women come to the YWCA Metro St. Louis for food and housing, the nonprofit organization offers something it considers equally critical: the opportunity to open a bank account.
The staff immediately counsels the women on how to open an account, said Nicole Hughes, manager of the YWCA's transitional housing program and Women's Economic Stability Initiative.
"It's day one," Hughes said.
And if the advice isn't enough, the YWCA will even help those women open a savings account.
With funding from the United Way of Greater St. Louis, the YWCA began this year a new "small dollar" individual development account, or IDA, to help homeless women start a savings account that can be used to pay down legal, utility or other debts. The IDA deposits are held in local credit unions and banks.
The YWCA is among the growing number of nonprofit groups, financial institutions and government agencies worried about the socioeconomic impact of the "unbanked" -- those who don't have a checking or savings account. One out of every 10 St. Louis households has no link to the banking system.
Rising bank fees in recent years, coupled with the economic downturn, contributed to the declining use of bank accounts.
By staying on the margins of the financial system, without access to credit or savings, people are less able to endure other financial shocks, such as an auto accident or a layoff.
Using alternative financial services such as payday lenders and title loans, which come with high fees, can also perpetuate a cycle of poverty.
"In my view, if you don't get financial access right, forget the rest of the balance sheet," said Ray Boshara, a senior adviser with the St. Louis Fed.
Recently, organizations ranging from the New America Foundation think tank to the U.S. Department of the Treasury met in St. Louis to develop strategies to reduce the number of people who are unbanked or underbanked, meaning they have an account but also use expensive financial services such as payday loans.
Increased efforts to reverse unbanked and underbanked trends come as the number of unbanked St. Louisans is on the rise. According to a study released by the Federal Deposit Insurance Corp. last month, the number of unbanked St. Louisans rose 2.1 percentage points compared to 2009, when the FDIC last released its unbanked survey results.
An estimated 9.7 percent of households in the St. Louis region -- representing 111,000 households -- don't have a checking or savings account, compared to 8.2 percent nationally. St. Louis is among the top metropolitan areas for unbanked African-American households, 29 percent, trailing only Minneapolis and Cleveland.
"The problem is particularly harsh here," Boshara said. "We have a high rate of African-American households that are underbanked, and it's something we take very seriously."
The FDIC's unbanked study showed the leading reason people didn't have a bank account was that they didn't think they had enough money to open one.
That was true for Mechelle Seals-Wright of St. Louis, who didn't have a checking or savings account for more than 20 years until she went to the YWCA for emergency housing help two years ago.
For more than two decades, Seals-Wright said she relied on check-cashing stores with hefty fees to cash checks. She kept money tucked in coat pockets and closets, she said.
Through the YWCA's financial education programs, Seals-Wright discovered she could open a bank account that didn't carry a monthly service charge with only a few dollars to deposit.
"I never knew you could open an account with a small amount of money," she said.
Last year, Seals-Wright, 48, opened a checking and savings account with a local credit union, and she's saving up money from her job at the Chaifetz Arena to buy a car.
"I feel really good about myself now," she said, adding that having a bank account has helped her self-esteem and helped her feel more responsible about her finances.
Many financial institutions are now starting to realize that unbanked and underbanked households are an opportunity. In June, Carrollton Bank and St. Louis Community Credit Union jointly opened a center that provides financial literacy, professional development and other services at a shopping center in north St. Louis.
And, several local banks have added new branches and loan products to reach those who aren't currently banked, including Midwest BankCentre, which is opening a branch in Pagedale next month.
The branch, located in a low-income area with no other banks within the city limits, will offer free workshops on budgeting and repairing credit, among other topics. More banks are also rolling out accounts for those who have left the banking system that don't require large opening deposits.
"I see more of an interest from financial institutions to make these kind of products available," said Sheri Flanigan-Vazquez, chief operating officer at Justine Petersen, a St. Louis nonprofit lending organization that provides startup loans.
Justine Petersen itself is partnering with Citibank to expand the use of products for those with poor credit histories, including the unbanked and underbanked.
"Banks are recognizing that there's a market out there and offering services," said Jennifer Tescher, president and CEO of Center for Financial Services Innovation, a Chicago-based research and advisory organization focused on increasing financial services for the underserved.
CFSI founded the Underbanked Solutions Exchange in 2008 for midsized banks and credit unions to share information on new products, research and services for the underbanked.
And other companies are interested in offering services outside of traditional banking.
Wal-Mart debuted this month the Bluebird checking and debit account service in partnership with American Express as an alternative to bank debit and checking accounts. With Bluebird, customers can access mobile bill pay services and deposit money using their smartphones without paying a monthly or annual fee for the account.
Advancements in smartphone technology, prepaid debit cards and kiosks all hold potential for increasing access to financial services, Boshara said.
"What's interesting is that in this point in time, you have banks and nonbank players getting into this space," he said. "Nobody really knows what to make of that world."
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