Overview of the FDIC National Survey of Unbanked

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. 1

Agenda Background p Survey highlights p www. economicinclusion. gov p Conclusions and next steps p Discussion p 2

Background p p p 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). 3

Census’ Current Population Survey background p p p 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). 4

FDIC supplement background p p 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: n n p 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. 5

Key definitions p p p 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. 6

Basic survey question flow UNBANKED NO S HH asked series of Q’s: If previously had an Account, reasons for not Having an account, intentions to open account. Do you T STOP or does anyone A in your HH Rhave a checking T or savings account? YES BANKED HH asked about use of specific AFS services, Frequency and Reasons for using AFS If affirmative. BANKED: NO OR USE AFS LESS THAN ONCE OR TWICE/YEAR* BANKED, NOT UNDERBANKED: YES, USED AFS AT LEAST ONCE OR TWICE/YEAR* 7 *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. 8

Topline results compared to previous studies p p 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. 9

Survey Highlights Unbanked Households 10

Characteristics of unbanked households p p p p 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. 11

Unbanked households by race/ethnicity 12

Unbanked households by household type 13

Unbanked households by income 14

Unbanked households by education 15

Unbanked households by age 16

Unbanked households – never-banked versus previously banked 17

Unbanked households by region and state 18

Unbanked households race/ethnicity by region and state: South 19

Unbanked households race/ethnicity by region and state: Midwest 20

Unbanked households race/ethnicity by region and state: Northeast 21

Unbanked households race/ethnicity by region and state: West 22

Reasons households are unbanked 23

Unbanked households’ likelihood of opening account 24

Alternative financial services used by unbanked households p About 66 percent of unbanked households have ever used an AFS. n n n p 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. 25

Survey Highlights Underbanked Households 26

Characteristics of underbanked households Households more likely to be underbanked than the population as a whole are those: p p p 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. 27

Alternative financial services used by underbanked households p p p 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: n n n 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. 28

Reasons underbanked households use AFS - transaction products Non-bank Money Orders Non-bank Check Cashing 29

Reasons underbanked households use AFS - credit products Payday Lenders Pawn Shops 30

Underbanked versus unbanked households - race/ethnicity 31

Underbanked versus unbanked households – income 32

Underbanked versus unbanked households – household type 33

Underbanked versus unbanked households – age 34

Underbanked households by region and state 35

Underbanked households race/ethnicity by region and state: South 36

Underbanked households race/ethnicity by region and state: Midwest 37

Underbanked households race/ethnicity by region and state: Northeast 38

Underbanked households race/ethnicity by region and state: West 39

Household use of prepaid/debit cards 40

www. economicinclusion. gov 41

A website designed to facilitate access to state and large MSA-level data… 42

And highlight initiatives, broad-based efforts, and research 43

Conclusions and Next Steps 44

Household survey conclusions p p p An estimated 7. 7 percent of U. S. households, 9 million, are unbanked 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. 45

Quick headlines from the 2009 bank survey p p Most banks are aware that significant unbanked and underbanked populations are in their market areas, n But relatively few banks have made it a priority to target these market segments. Many banks offer basic financial education materials, n 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 longterm customers. Most banks offer basic checking accounts to all customers, n But few offer deposit, payment, credit, and electronicallybased 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 46 perceived regulatory issues related to anti-money laundering

Recommendations from the bank survey p Consider defining a national shared government-industry goal to lower the number of unbanked and/or underbanked individuals and households in the U. S. p This could include creating a national task force to provide oversight and guidance for the achievement of the shared goal. p Goal would best be based on reliable and regularly reported statistics on the number of unbanked and/or underbanked households in the U. S. 47

Discussion 48