The Determinants of Being Unbanked for U.S. Immigrants

Random-effects binary choice models are estimated to identify the attributes that influence the likelihood that immigrants are unbanked. This study finds that the likelihood to be unbanked is higher for immigrants with less education, poverty-level income, or a larger family hut lower for immigrants with greater net worth or higher income. Among immigrant groups, Mexican and other Latin American immigrants have the highest rates of being unbanked. Programs aimed at helping immigrants move into the financial mainstream may benefit from taking into account the differences in socioeconomic attributes and migration experiences of specific populations. ********** Over 31 million people residing in the United States are immigrants. According to the U.S. Census (Malone et al. 2003), the immigrant population grew by 57% between 1990 and 2000 and accounts for 10% of the population. Immigrants represent additional resources to the labor market, entrepreneurial talents for new business creation, and a sizable consumer market. In terms of ethnic make-up, this population group has undergone substantial changes over the past decade. The infusion of new immigrants has tipped the U.S. minority population toward Hispanics, who now represent the largest minority group in the nation. Upon arrival to the United States, immigrants are immediately faced with making financial decisions and conducting transactions ranging from cashing payroll checks and paying living expenses to remitting income to family members residing in their home country. How familiar or receptive new immigrants are to the U.S. financial system is an important question. While much research has been undertaken to answer questions related to immigrant integration into the U.S. labor (Borjas 1986; Carnegie Endowment for International Peace and the Urban Institute 1997; Yuengert 1995) and housing markets (Alba and Logan 1992; Rohe, VanZandt, and McCarthy 2000), little is known about their financial integration. To better understand immigrant financial integration, it is important to analyze their participation in the financial mainstream. Specifically, how likely are immigrant households to be unbanked (without a checking or a savings account)? What socioeconomic and demographic characteristics significantly influence their likelihood to be unbanked? Are immigrants as likely to hold a transaction account as the U.S. born? Does the participation in the financial mainstream differ for immigrants from different countries or regions? Our study seeks to answer these questions about this increasingly important population group. Binary choice models are used to estimate the likelihood that an immigrant household is unbanked and to determine whether or not this decision differs for immigrant groups and the U.S. born. We are particularly interested in identifying the attributes that influence the likelihood of being unbanked for the different immigrant groups and to compare these findings to those of the U.S. born. Holding a transaction account is the foundation to participation in mainstream financial markets. Having a better understanding about the attributes associated with being unbanked can help policymakers, educators, financial institutions, and community organizations more effectively promote participation in the financial mainstream. The next section provides an overview of the immigrant financial integration literature. Data and Sample Description describes the data used in the analysis. This is followed by a section on the economic model and econometric framework and finally the results. IMMIGRANT FINANCIAL INTEGRATION Immigrants typically migrate to the United States seeking better employment or lifestyle opportunities for themselves and their families than are available in their home countries. From the worker's perspective, the ability to deposit one's paycheck into a transaction account helps ensure safety against theft or loss. …