Unbanked might not show up in the dictionary, but the term has been getting plenty of attention over the past few months.
While checking account alternatives have been making headlines recently, consumers without any connection to the banking industry are nothing new. The unbanked population has been around for a long time. In California, a government-sponsored program has been trying to shrink that population.
For the past four years, Bank on California has been trying to steer residents who do not have any relationship with the banking industry toward Federal Deposit Insurance Corp.-insured checking and savings accounts. It's clear the organization has had some great success in educating unbanked consumers about the benefits of opening checking accounts. Since 2008, Bank on California has helped to open more than 214,000 starter accounts and led more than 2,000 financial education workshops.
This week, I caught up with Alana Golden at the California Department of Financial Institutions to get her perspectives on the challenges of connecting with the unbanked.
Q: As you've worked with the unbanked population in California, what are some of the primary reasons that these consumers are not part of the financial mainstream?
A: For most, it's a financial literacy issue. Growing up, their family didn't use a checking and savings account, so when they became adults they didn't have experience with banking. (Here are some other reasons.)
- Many people didn't learn how to manage money at home or in school and aren't aware of the resources to help them, so they've struggled to manage their finances.
- Some have a negative account history with a financial institution and don't realize there are special accounts to help them return to a positive status.
- Being unbanked is also common for recent immigrants who aren't experienced with a financial system that provides deposit insurance to protect their hard-earned money.
- Cashing their checks and using cash, without having a safe mechanism to save, has just become habit.
- Others feel they don’t need an account because they don’t earn enough money.
Q: What are some of the biggest challenges you've faced in reaching this audience and communicating the benefits of a checking account? How have you overcome those obstacles?
A: The goal of Bank on California is to help the unbanked access mainstream financial products and services from a community bank or credit union, where they can pay their bills, build a positive account and credit history, gain access to lower-cost sources of credit, and start saving for their futures. Some of the biggest challenges faced are related to the following.
- Language and culture. According to a 2009 study by the FDIC, 19.3 percent of the unbanked are Hispanic. (Bank on California provides financial education workshops taught in Spanish.)
- Geographic. The unbanked live and work throughout the state. We partner with local community organizations, including faith-based, employers and schools, in order to reach them.
- Bank on California partners with the Internal Revenue Service and local community coalitions that offer free tax preparation services that highlight the earned income tax credit, or EITC, which can help a family save.
- We are also using websites and social media to help us reach the unbanked and the organizations that serve them.
Q: Have banks and credit unions adjusted their account terms and/or fee structures to accommodate these new account holders and members?
A: Bank on California bank and credit union partners are required to offer starter accounts that are no- or low-cost; have no minimum balance requirements; waive/refund one set of nonsufficient fees (per year); and assist those with negative account histories.
Bank on California connects the unbanked with financial education opportunities. Basic banking skills are taught free of charge through Bank on California workshops at convenient locations through partnerships with local community-benefit organizations (nonprofits), faith-based organizations, schools, and employers.
What do you think of the program? Should other states take the cue from California and aim to help consumers understand the benefits of traditional banking?