States and Metro Areas With the Most Unbanked Households
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States as well as Metro Areas With the Most Unbanked Households
The author is Laura McMullen Assistant Assigning Editor Personal finance, financial and news Laura McMullen assigns and edits the financial news content. She was previously a senior writer at NerdWallet and was responsible for the process of saving, budgeting and making money; she was also a contributor to “Millennial money” column of The Associated Press. Prior to joining NerdWallet in 2015, Laura had worked at U.S. News & World Report in which she created and edited articles on health, careers and education as well as contributed to the rankings of the company. Before joining U.S. News & World Report, Laura interned at Vice Media and studied journalism, history and Arabic at Ohio University. Laura is a resident of Washington, D.C.
Sep 28, 2016
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The benefits of your bank aren’t limited to the free coffee and sweets — they include things you might take for granted like free check cashing and loans with reasonable interest rates. However, for the more than 9.5 million people who aren’t banked within the U.S., these services are expensive which NerdWallet found adds hundreds of dollars per year.
The U.S., 7.7% of households had no members with a bank account as per the 2013 FDIC national survey of Unbanked and Underbanked households, the most current set of data available. It was a decrease from the 2011 version of the Federal Deposit Insurance Corp.’s biannual survey, and it dropped to 7% in 2015, as per an early preview of the new edition, which will be released in October.
Missed benefits, added fees
While fewer families are avoiding banks, the ones who are miss out on opportunities to create emergency funds, as well as secured credit cards which can aid in building credit. They aren’t able to benefit from the full range of security against fraud offered by federally insured banks and credit unions provide, and they can’t access the online and mobile banking options which can save the time as well as money. (Read NerdWallet’s national coverage on the subject to learn more about the options available to unbanked consumers, like .)
Households that don’t have an account with a bank also have to incur a lot of charges to expensive alternative financial-service providers. NerdWallet has compiled the cost of money order, check cashing, and pre-paid debit cards. Households that are not banked and use a prepaid debit card that permits direct deposit pay an annual average for $196.50 in fees. On the other hand, those who are not banked and make use of a prepaid debit cards that does not allow direct deposit pay an annual average of $488.89 in fees. (See our complete methodology for more information.)
Unbanked households by state and metro area
We examined the $196.50 in addition to the $488.89 figures in percentages of the state’s 2013 median income for households that do not have accounts with banks that are based on FDIC data. Look at on the below map, to see the states where households that aren’t banked are the most affected by the cost of fees, using both the higher ($488.89) as well as the less ($196.50) figures. You can also see where the states with the greatest proportion of households without a bank account.
The tables below show the proportion of households that are not banked in the 22 metro areas , and across all states plus Washington, D.C. We estimated the cost of not having accounts with banks by dividing it into the average unbanked household income in the area as determined by the FDIC. We excluded three major metro areas for which some data were unavailable: San Diego-Carlsbad-San Marcos, California; Sacramento-Arden-Arcade-Roseville, California; and San Antonio, Texas.
In metro areas, households are not banked.
UNBANKED HOMEHOLDS BY STATE
Rank (most to least unbanked)
Percentage of all households that are not banked
Income of a household that is not banked
Total unbanked costs of all household households (lower estimate)
Total unbanked costs across all families (higher estimate)
Costs unbanked average as a percent of income (using higher estimate)
District of Columbia
1. The percentage of households without a bank account is significantly higher in low-income households. Nationwide, 7.7% of households didn’t have a bank account in 2013, but that rate was noticeably more so for low-income households. Nearly twenty percent of the households that had incomes below $30,000 were unbanked and 24% were not banked, meaning they had more than one saving account or but had used at least one alternative financial service within the last year. These kinds of services include check cashing, money orders and payday loans. More than a third (35.6 percent) of unbanked households surveyed for the FDIC report indicated that the primary reason for not having an account was that they didn’t have enough money to maintain an account or meet the required minimum balance. (Note that many do not require minimum balances.) Some of the most common reasons are the distrust or dislike of banks and high or unpredictable account fees.
The correlation of the national population between bank-independent and low-income households is reflected at the state level. Seven of the 10 states that have the highest percentages of unbanked residents are among the 10 states that have the lowest median household incomes in the latest U.S. Census American Community Survey. Except for Washington, D.C., the nine states with the highest percentage of households without bank accounts were home to households with incomes that were lower than the median of the 2013 U.S. median of $52,250.
2. The financial burden of not having a bank are particularly affecting households with low incomes as income among households who don’t have accounts with banks is especially poor. The average income after tax of households that were not banked in the U.S. was $17,359, and the lowest was in Montana at $11,963.
Be aware that households without bank accounts that utilize a prepaid debit card with no direct deposit have to have to pay on average $488.89 in fees per year. In Montana the amount would be upward of 4% of the typical household’s income that is unbanked. For context, the typical U.S. household spent about 3.5% of its post-tax earnings on gasoline or motor oil during the year 2015, as per the U.S. Bureau of Labor Statistics.
The situation in Washington, D.C., the gap in income between banked and unbanked households is staggering. The median income of 2013 for households that had a bank account D.C. was $55,032, but it was just $14,588 for households that didn’t have having a bank account. The latter figure doesn’t go far in a place where housing options for those with low incomes are shrinking. According to a D.C. Fiscal Policy report in 2013, there were only half as many Washington apartment rentals for less than $800 a month than there were in 2002. The report states that “subsidized housing is currently the only source of inexpensive apartment units.”
3. Unbanked local demographics reflect the national trend: According to the FDIC One-fifth of black households (20.5%) in the U.S. in 2013 were unbanked, followed by Hispanic (17.9%) along with American Indian/Alaskan families (16.9 percent). The figure was just 2.2 percent of Asian households were unbanked this was a lower proportion than that of white (3.6%) and Pacific Islander and Hawaiian (6.1%) households.
A lot of the areas with the highest proportion of households that are not banked reflect the national demographics. In No. 12 Tennessee in addition to No. 2 Louisiana, each state’s biggest city has a majority of black residents and the largest cities are Memphis at 63 percent and New Orleans at 59.8%. Phoenix is at the top of our list of metros that are not banked, has a large Hispanic population as does Albuquerque, the largest city located in New Mexico, which tied with seventh place among states. Two states with the highest percentages of populations that aren’t banked, New Mexico and Oklahoma are home to American Indian populations nearly 10 times higher than that of the U.S. as a whole.
4. Limited access to in-person and online banking hurts: It’s hard to get a bank account opened if there are no branches where you reside. Nearly half of the ZIP codes in the mid-South are “bank deserts” that is, they’ve the same or fewer banks, as per the MS-based Hope Policy Institute, which studies financial inclusion. The analysis of the institute shows that the mid-South comprises Mississippi, Louisiana and Arkansas and has some of the highest rates of households that are not banked. It also encompasses the western part of Tennessee which is home to Memphis, where almost one-fifth (19.5 percent) of households don’t have accounts with banks.
Brick-and-mortar branches are even more important for customers who cannot connect to banks online. Certain Memphis residents are unable to use both methods. According to the U.S. Census Bureau’s 2013 American Community Survey, 27.7% of Memphis households did not have access to the internet, compared with 21.4 percent across the country. The number of people without internet access is very high in New Orleans, too, at 27.4 percent.
Sreekar Jasthi is a data analyst at NerdWallet the personal finance site. Email: . Laura McMullen is a staff writer at NerdWallet. Email: . Twitter: .
Income and concentrations of unbanked households
To determine the median income of households that are not banked nationwide and in each state, we took data from the . To identify which metro areas to analyze we first selected those 25 from the FDIC report that contained the highest number of households. We omitted San Diego-Carlsbad-San Marcos, California; Sacramento-Arden-Arcade-Roseville, California; and San Antonio, Texas, because of insufficient income data.
Figures for the percentage of households that are not banked in each state and metro area are also from this report. FDIC report.
Fees associated with being unbanked
We found a price range from $196.50 between $196.50 and $488.89 in charges for an average unbanked household by adding in the fees that are associated with cash checks as well as money orders and prepaid debit cards. The cost of these fees will depend on the extent to which the prepaid debit cards allow direct deposit.
To figure out the costs of cashing checks for households that are not banked and use debit cards that do not require direct deposit or for those using only cash, we assumed two paychecks cashed per month and a charge that is 1% of a check’s value. For households using debit cards prepaid with direct deposit, we added no cash for checks. For both households we assumed that there would be one money purchase per month and an average fee of $1.40.
To determine the average of cashing of checks and money order fees, we used FDIC’s data on how often alternative financial services used by each households of different types (banked or not) and then added the less frequent use among banked households to the average cost.
To calculate the average annual cost of debit cards that are prepaid we examined 69 cards that were based on the major issuers, their high-traffic searches volume including Pew Charitable Trust’s as well as the card offerings listed on ‘s and ‘s websites. For cards with different plans, we counted each plan as a separate card.
The report covers the annual cost of the prepaid debit card that comes with and without direct deposit for payroll. The median monthly cost used was $4.98 The median out-of-network ATM cost was $2.50. We used the maximum fee for cash loading of $4.95.
With no the direct deposit option, we assumed twelve monthly fees and four ATM charges per month and the two fees for cash loading each month. PIN- and signature-based purchase transaction fees aren’t usually applicable to cards with monthly fees, so we omitted them.
Upcoming FDIC survey
A preview of the 2015. FDIC National Survey of Unbanked and Underbanked Households, scheduled for release in full on Oct. 20th, showed that the rate of unbanked households has fallen to 7%, or about 8.6 million household. NerdWallet’s analysis is based on the most current set of information available.
The author’s bio: Laura McMullen writes about managing money for NerdWallet. Her writing has been featured on The Associated Press, The New York Times, The Washington Post, and other outlets.
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