LA Grows Unbanked Population

December 8, 2011

"Banking is a cornerstone of financial security." So begins a recent report from the Pew Health Group - Slipping Behind: Low-income Los Angeles Households Drift Further from the Financial Mainstream.

Yet, as the report title suggests, mainstreaming the financially marginalized is an elusive goal.

According to JoinBankOn.org, an online resource that we covered yesterday (see story), 12.1% of households in Los Angeles are unbanked; 18.9% are underbanked. On average, 7.7% of households nationally are unbanked.

The Pew Health Group began following 2,000 low-income households in Los Angeles in 2009 in order to get a better handle on the financial needs of underserved populations, especially in urban pockets of poor. Half the group had bank accounts at that time. When they returned to survey the group again in 2010, Pew researchers discovered its panel had more unbanked households than households with bank accounts. This despite the fact that a Bank On LA program was launched in March 2009 to promote access to low-cost deposit accounts.

In all, 13% of participating households closed bank accounts between 2009 and 2010, whereas 8% of those who had been unbanked in 2009 reported having bank accounts in 2010.

The primary reason given for closing bank accounts: unexpected fees. No surprises there, really. One third of the newly unbanked cited increased and/or unexpected fees; 27% blamed lack of funds and/or unemployment.

Not surprisingly, the newly unbanked rely heavily on cash. Nearly six in 10 (59%) conduct business entirely using cash; another 26% use cash in combination with nonbank financial services providers, like bill-pay services.

Surprisingly (or not), almost a third (31%) of banked households reported using alternative financial services providers.

More Outreach, Pricing Transparency Urged

The Pew report credits Bank On LA with staunching the flow of local households away from the the mainstream banking system. But it gives the program poor grades in brand awareness. Only 9% of those surveyed (described as largely female and Hispanic) had heard of the Bank On LA. The highest concentration of awareness was among the newly banked; 13% said they knew of the program.

Bank On LA promotes low-cost accounts at 12 financial institutions. All the big banks participate, including BofA, Wells Fargo, Chase and Citibank, as well as a few community banks and credit unions, according to BankOnLA.com.

The Pew report discussed several recommendations for overcoming the barriers to mainstreaming the un/underbanked. These include:

• Employers, banks and government agencies should do more to promote Direct Deposit among employees and benefits recipients.(e.g.: just 11% of householdson public assistance receive benefits via Direct Deposit to a bank account.)
• Financial institutions need to offer more low-cost accounts. In other words - little to no minimum balance requirements and reasonable and transparent fees.
• Financial institutions should broaden product offerings to include services like low-cost remittances.
• All parties can do more to promote savings accounts for improved financial stability.

Copies of Slipping Behind: Low-income Los Angeles Households Drift Further from the Financial Mainstream can be downloaded at the Pew Website.

135 million of the world's poor today have some type of microinsurance policy