Overview of the FDIC National Survey of Unbanked and Underbanked Households

FDIC Advisory Committee on Economic Inclusion

December 2, 2009

Barbara A. Ryan

Deputy to the Vice Chairman

FDIC

Based on work of the FDIC Unbanked Survey Team which also includes Yazmin Osaki, Susan Burhouse, Luke Reynolds, Angelisa Harris, Katherine Samolyk, David Chapman, Timothy Critchfield, Ryan Goodstein, and Leneta Gregorie. 

Agenda
        - Background
        - Survey highlights
        - www.economicinclusion.gov
        - Conclusions and next steps
        - Discussion

Background
        - Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (“Reform Act”) requires FDIC to conduct ongoing surveys of banks on efforts to serve the unbanked.
        - Reform Act also requests FDIC to take into account “the size and worth of the ‘unbanked’ market” in the U.S.
        - Lack of complete and reliable data on this topic led the FDIC to enter into an agreement in 2007 with the Bureau of the Census to jointly conduct the first national survey of unbanked and underbanked households (“National Household Survey”) as a supplement to the Census Bureau’s Current Population Survey (CPS). 

Census’ Current Population Survey background
        - Sponsored jointly by Census Bureau and U.S. Bureau of Labor Statistics.
        - Source of national unemployment rate and other high profile economic statistics, also collects extensive demographic data.
        - Computer-assisted survey questionnaire administered by Census field reps across the country with additional telephone interviewing.
        - Probability sample of about 60,000 occupied households.
        - Designed primarily to provide national and state estimates of labor force characteristics of the civilian adult U.S. population. 
        - Each state sample is independent and tailored to the demographic characteristics of that area; some state samples are further tailored (i.e. CA).  

FDIC supplement background
        - Unbanked/underbanked supplement administered in January 2009 as an FDIC-sponsored supplement to the CPS. 
        - Census surveyed about 54,000 households and about 47,000 (86 percent) participated in the FDIC’s supplemental survey.   
        - Average supplement interview length ~ 10 minutes. 
        - Asked households 30 questions designed to yield estimates of: 
        - The number of unbanked and underbanked households at the national, state, and large metropolitan statistical area (MSA) levels;
        - Reasons why they are not utilizing or fully utilizing the mainstream financial system.  
        - Results map to CPS demographic data. 

Key definitions
        - Unbanked: Households that answered “no” to the question, “Do you or does anyone in your household currently have a checking or savings account?”
        - Underbanked: households that have a checking or savings account but also use alternative financial services, specifically non-bank money orders, non-bank check cashing services, payday loans, rent-to-own agreements, or pawn shops at least once or twice a year or refund anticipation loans at least once in the past 5 years. 
        - Householder: the owner or renter of the home.

Basic survey question flow

UNBANKED

UNDERBANKED

HH asked series of Q’s: 

 If previously had an 

Account, reasons for not 

Having an account, 

intentions to open account. 

HH asked about 

use of specific 

AFS services, Frequency

and Reasons for using AFS

If affirmative.

Do you 

or does anyone

 in your HH 

have a checking 

or savings 

account?

NO

YES

BANKED: YES, USED AFS AT 

LEAST ONCE OR

TWICE/YEAR*

BANKED:  NO OR USE AFS LESS

THAN ONCE OR TWICE/YEAR*

BANKED

STOP

START

BANKED, NOT UNDERBANKED

*OR RAL IN THE LAST 5 YEARS

National proportions of unbanked and underbanked households 
        -   An estimated 7.7 percent of households, about 9 mm with at least 17 mm adults, are unbanked.
        -   An estimated 17.9 percent of households, about 21 mm with about 43 mm adults, are underbanked.
        -   Taken together, at least 25.6 percent of U.S. households, close to 30 mm households with about 60 mm adults, are unbanked or underbanked. 

Topline results compared to previous studies
        - Caution - definitions and samples differ.
        - Federal Reserve System’s 2007 Survey of Consumer Finances found that 7.9 percent of families did not have a transaction account at a bank.
        - The Center for Financial Services Innovation’s Underbanked Consumer Study (2008) estimated 40 million underbanked households (106 million individuals), including ~20 million unbanked households.
        - No consistent existing estimates at the state, regional, or large MSA level with which to compare. 

Unbanked Households

Survey Highlights

Characteristics of unbanked households

	Households more likely to be unbanked than the population as a whole are those:
        - With a black, Hispanic non-black, or American Indian/Alaskan householder; or 
        - Where Spanish is the only language spoken at home; or
        - With a householder that is a foreign-born noncitizen; or
        - That are family households with an unmarried female or male family householder; or
        - Earning less than $30,000; or
        - With a householder holding less than a high school degree; or
        - With a householder under age 45.

Unbanked householdsby race/ethnicity

Unbanked householdsby household type

Unbanked householdsby income

Unbanked householdsby education

Unbanked householdsby age

Unbanked households – never-banked versus previously banked 

Unbanked householdsby region and state

Unbanked households - race/ethnicity by region and state: South

Unbanked households - race/ethnicity by region and state: Midwest

Unbanked households - race/ethnicity by region and state: Northeast

Unbanked households - race/ethnicity by region and state: West

Reasons households are unbanked 

Unbanked households’likelihood of opening account

Alternative financial services used by unbanked households
        - About 66 percent of unbanked households have ever used an AFS.
        - 54 percent have used non-bank money orders.
        - 38 percent have used non-bank check cashing services.
        - 14 percent have used pawn shops.
        - 12 percent have used rent-to-own.
        - 7 percent have used payday lending.
        - About 8 percent have used refund anticipation loans during the past 5 years. 

Underbanked Households

Survey Highlights

Characteristics of underbanked households

	Households more likely to be underbanked than the population as a whole are those: 
        - With a black, American Indian/Alaskan, or Hispanic non-black householder; or 
        - That are family households with an unmarried female or male householder; or
        - Earning up to $50,000; or
        - With a householder holding less than a college degree; or
        - With a householder under age 55.

Alternative financial services used by underbanked households
        - Underbanked households account for 19.4 percent of all banked households. 
        - By definition, all underbanked households have used an AFS at least once or twice a year. 
        - Among underbanked households: 
        - 81 percent use non-bank money orders.
        - 30 percent use non-bank check cashing services.
        - 16 percent use payday lending.
        - 16 percent use pawn shops.
        - 13 percent use rent-to-own services. 
        - 13 percent have used refund anticipation loans during the past 5 years. 

Reasons underbanked householdsuse AFS - transaction products

Non-bank Money Orders

Non-bank Check Cashing

Reasons underbanked householdsuse AFS - credit products

Payday Lenders

Pawn Shops

Underbanked versus unbanked households - race/ethnicity

Underbanked versus unbanked households – income

Underbanked versus unbanked households – household type

Underbanked versus unbanked households – age

Underbanked householdsby region and state

Underbanked households - race/ethnicity by region and state: South

Underbanked households - race/ethnicity by region and state: Midwest

Underbanked households - race/ethnicity by region and state: Northeast

Underbanked households - race/ethnicity by region and state: West

Household use of prepaid/debit cards

www.economicinclusion.gov

A website designed to facilitate access to state and large MSA-level data...

And highlight initiatives, broad-based efforts, and research

Conclusions and Next Steps

Household survey conclusions
        - An estimated 7.7 percent of U.S. households, 9 million, are unbanked and an estimated 17.9 percent, 21 million, are underbanked.   
        - Lower-income and minority populations are disproportionately represented among both unbanked and underbanked households.
        - Significant variation in these proportions exists across states and large MSAs.  
        - Taken together, these survey results create an imperative for government and industry to work together to expand financial access to these underserved populations. 
        - Unbanked and underbanked households differ in important ways and these differences should be taken into consideration when designing economic inclusion policies.

Quick headlines from the 2009 bank survey
        - Most banks are aware that significant unbanked and underbanked populations are in their market areas,
        - But relatively few banks have made it a priority to target these market segments. 
        - Many banks offer basic financial education materials,
        - But fewer participate in the types of outreach efforts that are viewed by the industry as most effective to attract and maintain unbanked and underbanked individuals as long-term customers. 
        - Most banks offer basic checking accounts to all customers, 
        - But few offer deposit, payment, credit, and electronically-based products that address the unique needs of unbanked and underbanked customers.  
        - Banks are concerned about the profitability of doing business with unbanked and underbanked individuals as well as perceived regulatory issues related to anti-money laundering laws and regulations

Recommendations from the bank survey
        - Consider defining a national shared government-industry goal to lower the number of unbanked and/or underbanked individuals and households in the U.S. 
        - This could include creating a national task force to provide oversight and guidance for the achievement of the shared goal.
        - Goal would best be based on reliable and regularly reported statistics on the number of unbanked and/or underbanked households in the U.S.

Discussion

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