The percentage of unbanked households in the U.S. is the lowest it has been since the FDIC starting monitoring this metric in 2009. According to a new report from the FDIC Survey of Household Use of Banking and Financial Services, only 5.4% of American households are unbanked (or approximately 7.1 million households out of a total of about 131 million households).
This is very positive news for many reasons, none the least of which is financial inclusion. Nations are often judged by the proportion of their populous actively involved in the economy. The thinking is that as poorer individuals gain access to financial systems, they have a greater possibility of getting out of poverty. Below is a good definition of financial inclusion and its benefits, drawn from a Business Standard posting:
Financial inclusion is a method of offering banking and financial services to individuals. It aims to include everybody in society by giving them basic financial services regardless of their income or savings. It focuses on providing financial solutions to the economically underprivileged. The term is broadly used to describe the provision of savings and loan services to the poor in an inexpensive and easy-to-use form. It aims to ensure that the poor and marginalised make the best use of their money and attain financial education.
Here comes the asterisk.
Unfortunately, this is 2020. No good news comes without a dark side. The Executive Summary for this survey points to a few caveats courtesy of the realities of today:
- Rising unemployment – the number of people who have lost their jobs as a result of the pandemic and its effect on the economy has put people out of work and that can lead to a decline in banked households.
- Difficulty accessing credit – as unemployment goes up, more people are in jeopardy of defaulting on their credit, thus banks tend to tighten their credit offerings thus preventing people from getting credit (a key component of financial inclusion).
- Decreased savings – as financial difficulties increase people will be forced to draw down on their savings. If this savings is in a bank, and it is depleted, the account can easily be closed.
Next year, when the FDIC publishes the 2020 results, what will the unbanked numbers look like? We can take guesses, but no one really knows. However, don’t be surprised if the number of unbanked increases thanks to this crazy year.
Overview by Peter Reville, Director, Primary Research Services at Mercator Advisory Group