Banking Relationships of Lower-Income Families and the Governmental Trend toward Electronic Payment - includes related articles - Statistical Data Included

Federal Reserve Bulletin, July, 1999 by Jeanne M. Hogarth, Kevin H. O'Donnell

Other studies have also found that lack of money was cited as the main reason for not having an account. A 1996 Treasury survey of recipients of federal benefit checks such as those for social security and Supplemental Security Income found that, of the roughly 20 percent that did not have a checking or savings account, about half cited "don't have enough money" as the primary reason.

In a 1996 survey of low-income families, the most frequently cited main reason was "no savings" followed by "bank account fees too high" and "banks require too much money just to open an account."(5) Anecdotal evidence indicates that concern over attachment of funds to satisfy court judgments regarding debt, child support, or other payments is another reason families do not have accounts. Although this response has appeared only rarely in most surveys to date, one out of five respondents without a checking account in the 1996 low-income survey indicated that wanting to "keep our financial records private" was their primary reason for not having an account.

The frequencies with which all families have cited certain explanations as the main reason for not having a checking account have changed between the 1989 and 1995 SCF. "Don't write enough checks" remained the most frequently cited main reason, but the proportion of families giving this response fell about one-fifth. The proportion of families citing "do not like dealing with banks" as the main reason rose about one-half, and the proportion citing "can't manage or balance a checking account" as the main reason rose about four-fifths.(6)

Other Financial Products and Services Used by Lower-Income Families

Besides a checking account, a major credit card was the most widely held financial product among lower-income families (table 4).(7) Although holdings of savings and investment products were not widely reported by lower-income families, more than half of them reported having term or whole-life insurance (table 1). Nearly half of lower-income families were homeowners; of these, more than one-third had first mortgages on their homes, while about 5 percent had some type of second mortgage.

4. Ownership of financial products by all families, and by lower-income families by status of transaction account ownership

                                        Lower-income families

    Product           All U.S.
                      families     All        Has         Has no
                                          transaction   transaction
Credit                                      account       account
  Major credit
   card(1)              66.5      44.6       56.2           7.7
  Loan
    First mortgage      38.7      18.1       21.3           8.1
    Vehicle             30.8      18.6       20.0          14.1
    Education           11.8      10.6       10.7          10.2
    Consumer            14.2      13.5       13.9          12.1

Savings and
 investment
  Certificate of
   deposit              14.3      12.9       16.5           (*)
  IRA or Keogh
   account              26.1      12.1       15.7           (*)

Life insurance          71.9      55.0       61.5          34.0