Credit Unions Offer Many Consumers Easy Access to Important Financial Services
Most Americans use retail banks or similar mainstream ﬁnancial institutions to conduct their ﬁnancial affairs, giving them ready access to some of the most efficient and sophisticated ﬁnancial services in the world. But alongside these consumers, there are also millions that conduct ﬁnancial transactions without ever using the well regulated and easily accessible ﬁnancial services providers that are available.
According to a recent study by the Federal Deposit Insurance Corporation (FDIC), as many as 51 million adults are estimated to have no relationship to mainstream financial service providers like banks and credit unions. Many of these consumers often rely on alternative ﬁnancial service providers (AFS) such as check-cashing outlets, payday lenders, pawnshops, rent-to-own stores, currency exchanges, and auto title lenders. While these alternative, nonbank ﬁnancial service providers offer convenient services and easy access to cash, their services often carry high costs that limit many families' ability to accumulate assets and establish a credit history.
Consumers that are not using or limit their use of traditional banking services are collectively known as the "unbanked" or "under banked".
Key findings of the FDIC study also revealed:
- 8.2 percent of US households are unbanked. This represents 1 in 12 households in the nation, or nearly 10 million in total. Approximately 17 million adults live in unbanked households.
- One-quarter of households have used at least one AFS product in the last year, and almost one in ten households have used two or more types of AFS products. In all, 12 percent of households used AFS products within the last quarter, including four in ten unbanked and under banked households.
- 29.3 percent of households do not have a savings account, while approximately 10 percent do not have a checking account. About two-thirds of households have both checking and savings accounts.
- 20.1 percent of US households are under banked. This represents one in five households, or 24 million households with 51 million adults. The 2011 under banked rate is higher than the 2009 rate of 18.2 percent.
- AFS transaction products (i.e., non-bank money orders, non-bank check cashing and non-bank remittances) are considerably more widely used than AFS credit products (i.e., payday loans, pawn shops, rent-to-own stores, and refund anticipation loans). In the last year, 23.3 percent of households used transaction AFS and 6.0 percent used AFS credit product.
According to the study, many households can -and do- cycle in and out the banking system over time. For example, nearly half of unbanked households were identified as having an account in the past, and, of these, close to half (48.2 percent) report that they are likely to join the banking system again in the future. Additionally, almost a quarter of fully banked households have used AFS in the past and could have been considered under banked at that time. The effort to serve this market segment requires not only banking the unbanked, but also retaining and better engaging current bank customers to prevent them from becoming unbanked or under banked. Offering low-cost deposit accounts with transparent fee structures plays an important role in this effort.
Our individual financial well being is dependent upon our ability to budget and manage our income and expenses, to the extent that we provide for systematic regular deposits to savings and investments. A disturbing finding in the research revealed that many people who are "unbanked" or "under banked" did not realize that they were able to access traditional financial services. For a variety of reasons, including misinformation provided by some AFS providers, many families and individuals have never even applied for a traditional savings account or checking account. Without accessing these simplest forms of financial services, consumers lock themselves out from the many additional services from which they could benefit.
This column has covered many of the opportunities that are available to individuals within the financial system, and main stream financial services providers offer the widest choices and the lowest costs to access these products. Hence, the greatest chance for financial success!
Credit unions have a long standing track record of bringing key financial services to virtually every level of consumer. A quick read of the home page of the BCU web site at www.bcu.org reveals myriad links to the many services available to all BCU members. As a member-owned institution rather than a stock holder institution, a credit union works directly for the members and not for shareholders. All profits are returned to members in the form of lower rates on loans and higher dividends This relationship allows the Credit Union to offer be very competitive on both their costs (e.g., interest rates for loans, service fees, mortgage costs) and their dividends (savings rates for CD's, savings accounts, and money market products). We are fortunate to have all of these financial services available to us, and we do ourselves a disservice not to evaluate those that could help to improve our financial well being.
Life. Money. You is a trademark of BCU.
©Patrick J. Catania 2013
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Baxter Credit Union, its Board of Directors, or its employees. The author is responsible for the content. Readers should consult with, and seek professional advice from their own attorneys, accountants, and financial advisors with respect to their individual financial needs and circumstances.