Unbanked.
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.
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,
- The median two-parent black family had $16,000 in wealth.
- The median single-parent white family had $35,800 in wealth (two-parent white families had $161,300).
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:
- My finances are simple (41 percent of African American respondents agreed versus 34 percent of all respondents.)
- I don’t have much money to manage (35 percent of African American respondents versus 25 percent of all respondents.)
- I can’t afford personal financial services (24 percent of African American respondents versus 19 percent of all respondents
Three ways banks and credit unions can help the unbanked and underbanked.
How can banks and credit unions connect to the underserved market? Flip the challenges and follow consumer values.
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Promote mobile banking. Mobile banking can help underserved consumers gain more access to financial services, according to an FDIC study. In addition to added convenience, mobile banking can give consumers greater control over finances. Alerts and tracking tools make it easier to avoid fees and track finances. First banks and credit unions must convince consumers that it’s safe to open an account online, which has thus far proven challenging.
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Become a trusted advisor. Trust is the foundation of every healthy relationship and imperative when money is involved. When it comes to financial services, African Americans consumers have practical expectations, according to CEB Iconoculture research. They are: do a good job managing my money, provide transparency, security and stick to the products and services that I need. Finally, demonstrate success.
- Accentuate the positive. The values most positively differentiated for African Americans compared to all U.S. consumers can provide important insights. They are belief, individuality, ambition and growth—ostensibly individual achievement and growth. African American Millennials tend to be more optimistic than their peers, according to a study by Richards/Lema and the University of Texas, Stan Richards School of Advertising and Public Relations.
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