Understanding Both The Unbanked And The Underbanked

By Jordan Meadows

Staff Writer

Despite advancements in banking accessibility and technology, a sizable portion of the population in the United States remains unbanked or underbanked.

An unbanked individual refers to someone who doesn’t have a checking or savings account at a bank or credit union. They primarily rely on alternative financial services like check cashing services, money orders, or payday loans for their financial transactions.

On the other hand, an underbanked individual has a bank account but still relies on alternative financial services because they don’t fully utilize the traditional banking system for various reasons, such as limited access to credit or banking products, distrust of banks, or high fees associated with maintaining an account.

North Carolina stands out with a commendable low percentage of unbanked individuals, merely 3%, a figure rivaling that of Florida in the southern region. However, beneath this statewide average lie disparities that underscore the importance of addressing financial inclusion comprehensively.

For instance, disabled individuals aged 25-64 face a disproportionately higher likelihood of being unbanked, with a staggering 14.8% falling into this category, contrasting sharply with their non-disabled counterparts.

Income emerges as a defining factor in banking access, with those earning below $15,000 annually bearing the brunt of unbanked and underbanked status with 19.8% being unbanked and 19.2% being underbanked.  The stark contrast is evident when comparing this cohort to individuals with incomes exceeding $75,000, where the unbanked rate drops significantly to only 0.6% are unbanked and 9.7% are underbanked.

Education further delineates this divide; as the education level increases, so does the percentage of people who are fully banked, with the highest percentage (89.2%) among people who have a college degree or higher. It’s possible that this is related to people with lower education levels earning less, meaning they are less able to maintain the minimum balance required for many bank accounts.

Racial and ethnic disparities persist as well, with Black individuals exhibiting 11.3% being unbanked and almost a quarter being underbanked. White people have the highest percentage fully banked at 89%. For Hispanics, over two-thirds are fully banked, with 24.1% underbanked and 9.3% unbanked.

The Southern region, characterized by fewer bank branches and limited broadband access, exacerbates these challenges, particularly in rural communities and communities of color. The Southern region has fewer branches per person than elsewhere in the U.S., with 3.6 branches per 10,000 people, compared to five branches per 10,000 people nationally.

Mississippi and Louisiana top the charts for the highest unbanked rates nationally, shedding light on the intersection of geographic location and financial exclusion.

Vermont has the most favorable banking environment among all states: it takes a strong stance against predatory lending by explicitly prohibiting payday loans and presents a high concentration of banks and credit unions, ranking 12th in the nation.

North Carolina demonstrates a commendable stance against predatory lending, ranking 7th best in the nation. However, within the top ten states, it records the highest rate of unbanked individuals. Additionally, North Carolina faces challenges in digital banking accessibility, ranking 13th highest in households without internet access, a critical means of banking today. Nonetheless, it stands out with the seventh highest number of banks among all states.

Tyrell, Bertie, Sampson, and Duplin counties exhibit the lowest levels of educational achievement in North Carolina. Bertie County specifically stands out as having the lowest median income in the state, alongside displaying the largest proportion of Black residents.

Given these factors and drawing from national statistics, Bertie County likely ranks among the counties in North Carolina with the highest rates of unbanked individuals. Additionally, Bertie County’s median household income ranks fourth lowest among all counties, aligning closely with Bladen, Scotland, and Robeson counties.

According to a recent study conducted by Upgraded Points, 37 percent of households in North Carolina do not possess credit cards, surpassing the national average of 28.5 percent. North Carolina ranks sixth among all states for the highest percentage of households without credit cards.

Predatory lending practices, privacy concerns, and high fees compound the barriers to banking access, with internet accessibility emerging as a critical factor in today’s digital banking landscape.

Moreover, the prevalence of unexpected costs, such as medical emergencies and car repairs, underscores the importance of robust savings mechanisms, a luxury often elusive for the unbanked population. A significant portion of Americans lack substantial savings, perpetuating cycles of financial vulnerability and insecurity.

Banks offer various services tailored to unbanked or underbanked individuals, including educational resources and access to bank accounts. Consumers can access free financial education through initiatives like the ABA Foundation programs or independent bank programs such as Bank of America’s Better Money Habits resources.

Additionally, government organizations like the FDIC offer financial education programs like Money Smart. Alongside education, banks may provide low- or no-cost bank account options.

According to the Financial Health Network, unbanked and underbanked Americans incurred $189 billion in fees and interest on financial products in 2018. With an estimated 63 million unbanked or underbanked individuals in the U.S., this translates to an average annual cost of $3,000 per person.

Contrary to traditional thought, being unbanked doesn’t shield individuals from creditors or collection agencies seeking repayment. In reality, creditors often become more aggressive in their pursuit, resorting to tactics like wage garnishment to collect unpaid debts.

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