October 29, 2022 / VOLUME NO. 233

Unemployed and Unbanked

For lower-income Americans, the ramifications of unemployment can extend to an individual’s banking relationship.

“Job loss has an economically and statistically significant effect on bank account ownership,” according to a recent working paper from the Federal Deposit Insurance Corp. that focuses on the relationship between employment and bank account ownership. The researchers found that losing regular income from a job makes it difficult for individuals to keep a bank account in good standing. Unemployed individuals risk incurring overdraft or maintenance fees that turn an account into an expense they can’t afford. 

“[F]or some low-savings households experiencing an income shock, the cost of maintaining certain bank accounts may outweigh the value added of those accounts,” the researchers wrote.

The consequences of unemployment and bank account loss were experienced by households that didn’t find reemployment within a year, and the effect has been “most pronounced” among the lowest income households, according to data gathered for the FDIC by the U.S. Bureau of Labor Statistics. Without a bank account, researchers found that these individuals increased their use of non-credit alternatives to handle transactions, such as prepaid cards, money orders, check cashing and pawn shop loans. 

The paper comes at an inflection point in the economy. About 4.5% of U.S. households were unbanked in 2021, according to the FDIC’s most recent survey, released this week; that is a decrease of 1.2 million households compared to 2019, the last time the agency conducted the survey. At the same time, more than 100 financial institutions have certified one of their checking accounts as a Bank On account that is safe, affordable and transparently priced. These accounts are designed to promote financial inclusion and wellness, and bring more people into the banking system. 

At the same time, the labor market has been buffeted by potentially systemic changes brought on by the coronavirus pandemic, and a significant minority of formerly working Americans are out of the workforce due to caregiving needs or the impacts of long Covid. On top of that, the U.S. appears to be teetering on the edge of a potential recession.

Without potential intervention and retention efforts from banks, any gains made over the last two years to bring unbanked and vulnerable households into the regulated financial services space could stagnate — or worse, erode.

• Kiah Lau Haslett, managing editor of Bank Director

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"We were a $20 billion bank acting like a $5 billion bank.” — Ira Robbins, Valley National Bancorp

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