Why Government Should Help Poor People Get Bank Accounts

Friday, May 16, 2014

In late April, senior government officials from several American cities and more than 25 countries in Latin America and the Caribbean met in New York City to talk about banking options for the poor. The fact that staff from Newark, N.J., Savannah, San Antonio and Miami attended the event reflects the increasing emphasis that local governments in the United States are placing on financial literacy as a tool for reducing poverty.

Almost one in 10 American households do not use a bank, according to a 2011 surveyby the Federal Deposit Insurance Corporation. Another 20 percent of Americans are under banked, meaning they have bank accounts, but also use expensive alternative financial services, such as payday lenders, pawn shops and check-cashing outlets. The survey showed that about 82 percent of unbanked households make less than $30,000 a year and slightly more than half of unbanked households earn substantially less than that — under $15,000 a year. Both the unbanked and underbanked populations struggle to build good credit scores that are critical for buying cars or a house.

In the past decade, some state and local governments have worked with banks and regulators to make it easier for low-income individuals to open accounts and accumulate savings. For example, the mayor and treasurer of San Francisco convinced local banks to waive overdraft fees and other charges. In Oakland, the city added a debit feature to its municipal ID card, which then provides some basic online banking features, including the ability to receive paychecks through direct deposit. San Antonio — and many other cities — offers one-on-one financial counseling to help people reduce their debt and improve their credit ratings.

Source: Governing (link opens in a new window)

Base of the Pyramid, financial inclusion