Why Unbanked Individuals Are at a Disadvantage When It Comes to Financial Services
Millions of individuals don’t have access to essential financial services in the US. Here’s why being unbanked can affect their financial security.
In the age of digital payment methods and mobile banking, you would think that everyone would have a bank account. However, this is not the case. According to the Federal Deposit Insurance Corporation (FDIC), there were around 7.1 million unbanked households in the United States in 2019. This means that no one in these households has a checking or savings account with a financial institution.
But there are many reasons why someone might be unbanked, such as not having enough money to meet the minimum balance requirements or not having access to a traditional banking institution in their area. Regardless of the reason, being unbanked can have significant consequences for an individual’s financial security.
Here are some ways that being unbanked can impact your finances:
1. Missed Opportunities For Financial Growth
When you have a bank account, you have access to products and services that can help you grow your finances. For example, you can take out a loan to start a small business or invest in a Certificate of Deposit (CD) to earn interest on your savings.
If your bank has partnered with a life insurance provider, you can even get bancassurance insurance to protect yourself against accidents and illnesses. However, these products and services are not available to unbanked individuals.
This means they can miss out on opportunities to grow their finances and improve their financial security. Of course, there are other ways to get loans and insurance, but they may not be as favorable as the products offered by banks. For example, you may have to take out a high-interest loan from a payday lender if you are unbanked.
2. Increased Vulnerability To Fraud And Financial Exploitation
If you’re unbanked, you’re more likely to become a victim of fraud or financial exploitation. This is because you’re less likely to access fraud protection services, such as account monitoring and fraud alerts.
You’re also more likely to use alternative financial services, such as check-cashing services and payday lenders. Scammers often use these services to target unbanked individuals and trap them in a dangerous cycle of debt that can be difficult to escape.
So, if you’re unbanked, you need to be extra careful about who you share your personal and financial information with. Remember to check the credentials of anyone who asks for your bank account or Social Security number. Or better yet, consider getting a bank account to have access to fraud protection services.
3. Difficulty Saving For Emergencies And Long-Term Goals
It can be challenging to save money when you don’t have a bank account. This is because you may not have a safe place to store your money or a way to earn interest on your savings. Of course, there are other ways to save money, such as using a piggy bank or stashing cash under your mattress.
But these methods are not as safe or effective as using a savings account. This is because your money is more likely to be stolen or lost if you don’t have a bank account. And if you do have a bank account, you can take advantage of features, such as automatic transfers and overdraft protection, to help you save money.
As a result, unbanked individuals are less likely to have the financial resources to cover unexpected expenses or achieve long-term financial goals. This means that they may have to rely on high-interest loans or credit cards to cover emergencies, further damaging their financial security.
4. Limited Access To Credit
Building credit won’t be easy if you don’t have a bank account. This is because you won’t have a credit history or a way to make regular payments. As a result, unbanked individuals may find it challenging to qualify for loans or other types of credit in the future.
You might say that you can build credit without a bank account by using a credit card. But if you’re unbanked, you’re less likely to be approved for a credit card. And even if you are approved, you’ll probably have to pay a higher interest rate because you’re considered a high-risk borrower.
That’s why it’s crucial to get a bank account if you want to build credit. By using a credit card and making regular payments, you can establish a good credit history. This will make it easier to qualify for loans and other types of credit in the future.
Being unbanked can have serious consequences for your financial security. If you don’t have a bank account, you may miss out on opportunities to grow your finances. You’ll also be more vulnerable to fraud and financial exploitation, and it can be challenging to save for emergencies or long-term goals. So, if you’re unbanked, now is the time to open a bank account and start building a better financial future.