3537904106_57fe05b12b_zThe FDIC (Federal Deposit Insurance Corporation) is an independent agency created by congress to give oversight to the financial community and protect the public interests. The FDIC monitors banking, loans and deposits, and collects data on how people save, spend, or invest their money.

One of the things they watch is the number of Americans who are either Unbanked or Underbanked. In this year’s report, there are approximately 70 million adults who are either unbanked or underbanked.

This represents over 30% of American adults, a whopping number that exposes some deep-seeded problems with the mainstream banking industry.

Unbanked – An individual who does not have any dealings with a bank. They rely exclusively on alternative financial services such as payday loans, pre-paid debit cards, tax refund loans, check cashing stores, pawn shops, or car title loans.

According to the FDIC, 17 million people (7.7% of households) in the US are unbanked. This is a slight improvement from the 2011 report, which noted an 8.2% of unbanked households.

Underbanked – An individual who has one active bank account (usually a checking account) but still uses at least one alternative financial service over the course of the year.

According to the FDIC, 51 million people (20% of households) are underbanked. This number is virtually identical to the results from the 2011 report.

Why Is This Important?

Mainstream financial institutions have long waged war against “alternative financial services” such as payday loans and prepaid debit cards. They claim that these services prey on people of lower incomes, charge exorbitant fees, and trap people in a “debt cycle.”

While they do raise some valid points, they seem to overlook the fact that a significant number of working Americans rely on these services to survive. This report is important, because it illustrates that 1 in 4 American households are not having their needs met by the financial system. That number is large enough to demand attention, and require an explanation. 6870876951_9360c4dcd3_z

If the banking system were as open to working-class Americans as it claimed to be, why do 30% of working people need to go elsewhere to have their financial needs met? There are two major contributing factors, or motives, for this choice. At the risk of oversimplifying the problem, there are basically two camps of people who don’t use banks.

The Banks Won’t Help Them:

For a majority of people who live paycheck-to-paycheck, they simply never have enough money at one time to warrant a bank account. Perhaps they can’t keep a minimum balance, or can’t afford to pay the bank fees for maintaining an account with so little money. For these people, they might indeed prefer to have a bank account, and to be able to consult a financial expert for help, but they simply can’t afford it.

Remember: the major banks claim to want everyone’s business, but they really just want the business of people who have money. The banks could entice many of these underbanked folks into giving them their business, but it would take an outreach program, a way to show working class Americans that the banks want to help them.

They Don’t Want The Banks To Help Them:

This is a smaller group of people, but still significant: people who choose to avoid any dealings with a bank. The sources of this distrust are many and varied, but the truth is that some people would rather keep their savings in their mattress then trust it to a bank.

The banking industry has many problems it needs to address in order to reduce the number of unbanked and underbanked households. While they try to crack down on alternative financial services, they miss the point – people don’t avoid banks because of alternative services, people rely on alternative services because the banks won’t help them.

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