offered by deposit-accepting institutions, and focus on the household level determinants of being banked.

We find that while the banked households earn more than the unbanked, this difference in income is smaller than that in wealth. The median banked household spends only 32% more per capita than the median unbanked household, and as Figure 1 shows, the distribution of income is similar across banked and unbanked households, except at the right tails. However, the median wealth per capita in banked households is 88% higher than that in unbanked households. The latter are also significantly less educated. Income alone accounts for little of the variation in bank usage, since it is not uncommon for a less educated neighbor of a banked household with similar income and occupation to be unbanked.

The survey reveals that in Mexico only 35% of bank accounts and 2.7% of accounts with formal microfinance institutions charge an annual fee. Households’ reports of their main reason for not having a bank account (Table 1) fail to support the notion that the unbanked are primarily those who are poor and find the transaction costs of bank accounts to be too high. Less than 1% of unbanked respondents picked high bank fees or initial deposits as their main reason, and only 0.23% complained that the branch is too far away. Since the surveyed unbanked are those living close to a banked household, our survey cannot measure the extent to which branch distance is a barrier to banking. But this survey design also ensures that distance is not a major determinant of the banking choice in our sample of households.

No more than 1% of unbanked respondents said that they did not have a bank account because there are too many requirements, the bank staff doesn’t treat the clients well, or that they do not know account opening requirements. This contradicts the hypothesis that the unbanked are those who are uncomfortable dealing with modern banks. Next, only 2% said that they did not have confidence in the bank, which goes against the distrust hypothesis.

The overwhelming majority of unbanked households (89%) put the blame on “not having enough money”. Together with our finding that controlling for location, income and occupation, banked and unbanked households differ significantly in education and wealth, this indicates that low levels of education or saving could be the most important reasons for staying unbanked. Given our data, we can only speculate about the causes behind the observed asset differences - inherited wealth, income shocks, or behavioral traits which affect the propensity to save- and it is also possible that some of the correlation between bank accounts and assets arises because having a savings account increases savings, as suggested by mental accounting studies (Bertrand et al. (2007)).

The rest of the paper is organized as follows. Section 2.1 presents the institutional background for this study, and section describes our data. Next, section 3 tabulates households’ self-reported reasons for not having bank accounts. In section 4, we compare the basic characteristics of banked and unbanked households, after which we describe their savings accounts, in section 5. Section 6 compares households by presenting linear probability estimates of the correlates of having a bank account, and then in section 7 we conclude with a discussion of possible interpretations of our findings.