DEFINITION of 'Unbanked'

Unbanked is a slang term for adults who do not use banks or banking institutions in any capacity. Unbanked persons generally pay for things in cash or else purchase money orders. Unbanked persons also typically do not have insurance, pensions or any other type of professional money-related services. They may take advantage of alternative financial services, such as check-cashing and payday lending, if such services are available to them.

BREAKING DOWN 'Unbanked'

About 10 million American households are unbanked. Nationwide, about 7.7 percent of households are unbanked, but the rate of unbanked can vary greatly from one state to the next. Mississippi has the highest rate of unbanked, at 16.4 percent. Rates of unbanked in some cities and counties exceed 20 percent. These places include Detroit, Michigan, Newark, New Jersey, Cameron County Texas, Laredo Texas, Hialeah, Florida, Miami, Florida and Starr County, Texas. Unbanked rates exceed 40 percent in Cleveland, Ohio, Savannah, Georgia, Nashville, Tennessee and Atlanta, Georgia. Half of the unbanked had a bank account previously, but are now choosing to conduct their financial lives without one.

Why Persons Become Unbanked

Most unbanked are white, native-born Americans, but many immigrants, legal and illegal, are also unbanked. People can choose to be unbanked for many reasons. Criminals avoid using financial institutions because law enforcement officials can track their actions in their accounts. Older people who survived the Great Depression may have a deep distrust of all financial institutions and therefore do not use them; the same can be true for recent immigrants who experienced banking crises in their countries of origin. Extremely poor individuals may also have no need for the banking system as they try to survive their day-to-day lives, and may indeed find that they are unable to maintain minimum balances, afford account fees, or arrange for transportation to and from bank branches during banking hours.

Initiatives to Help the Unbanked

Politicians at the state and federal levels have attempted to help the unbanked gain financial literacy and benefit from banking services. Some such initiatives include California Governor Arnold Schwarzenegger’s Bank on California Initiative, and the FDIC’s Money Smart program. The U.S. Treasury Department’s Section 326 regulations, which allow banks and credit unions to accept identification issued by foreign governments, seeks to help undocumented aliens become banked. The U.S. Treasury Department makes federal payments to unbanked federal benefits recipients using a Mastercard prepaid debit card.

RELATED TERMS
  1. Unified Payment Interface (UPI)

    A Unified Payment Interface (UPI) is a single window mobile payment ...
  2. Bank

    A bank is a financial institution licensed as a receiver of deposits. ...
  3. Federal Reserve Bank Of Atlanta

    The Federal Reserve bank responsible for the sixth district and ...
  4. Bank Run

    A bank run occurs when a large number of customers withdraw their ...
  5. Subsidiary Bank

    A subsidiary bank is a type of bank that is located and operated ...
  6. Branch Banking

    Branch banking is engaging in banking activities such as accepting ...
Related Articles
  1. Small Business

    Why Cash Will Never Be Obsolete

    As long as the banking system remains strong and so many Americans remain unbanked, the United States will not have a cashless society.
  2. Tech

    3 Reasons Why Cash Might Be Obsolete in the Near Future

    Cash might soon become obsolete as consumers increase their use of cash alternatives such as debit cards and cellphones to make purchases.
  3. Personal Finance

    Prepaid 'Credit' Cards: Convenience at a Cost

    These cards offer convenience and security, but are they worth it?
  4. Personal Finance

    Banking Has Changed: What Does It Mean For Consumers?

    Banks have long been leading spenders on technological innovations. Learn the key changes in the banking industry and what institution is right for you.
  5. Investing

    Introduction To The Chinese Banking System

    As China steps into a greater role in the global economic system, their banking system continues to evolve.
  6. Insights

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
  7. Personal Finance

    The evolution of banking

    Discover what makes the first bank and how the evolution of banking change their business model. Find out how this system of money management developed into what we know today.
RELATED FAQS
  1. What is the banking sector?

    Learn why the banking sector is a vital industry to our economy, what it does to drive the economic growth and understand ... Read Answer >>
  2. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
  3. What is the difference between an investment and a retail bank?

    Learn the primary differences between retail banks and investment banks by examining the business activities, type of clients ... Read Answer >>
  4. What are key government regulations that affect investing in the banking sector?

    Discover how the global financial crisis of 2008 changed the face of banking in the United States and around the world by ... Read Answer >>
Trading Center