It’s how financial institutions refer to consumers who have no checking or savings account. Those who have an account and interact with payday lenders and other alternative financial services are called “underbanked.”
There’s lots of research connecting unbanked and underbanked to poverty. In other words, consumers with stronger financial institution relationships are generally more financially secure. This because they have access to affordable credit, savings products and resources.
At least a quarter of American households are unbanked or underbanked, according to the Federal Deposit Insurance Corporation. And nearly half of African American households are unbanked or underbanked.
Why the disparity? According to CEB Iconoculture research, the primary factors are access, assets and attitudes.
Bank branches are generally less convenient to African American consumers (MagnifyMoney Research on Bank Branch Presentation, February 2016). There are 40.6 bank branches for every 100,000 people who live in majority white counties in the U.S., compared to 32 branches located in majority African American counties.
Then there’s the issue of wealth. African American families on average have less household income with which to work. A study released this year by Demos found that African American two-parent families have half the wealth of white single parents. Specifically,
These factors and more prompt African American consumers to be more likely to manage their personal finances with little or no outside help, according to CEB Iconoculture research. When asked why they prefer a DIY approach, African American respondents were more likely to point to the following reasons than the total survey audience:
How can banks and credit unions connect to the underserved market? Flip the challenges and follow consumer values.
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