Most of us rely on banking to manage our finances. However, with many alternative financial services being introduced, some have moved to these to avail themselves little perks that traditional banking fails to offer. These services include prepaid debit cards, payday loans, and other financial services. Does that make people who do not use banks for financial transactions underbanked or unbanked?
A report released in 2020 by the Federal Reserve stated that in 2019, 22% of adults in the United States were either unbanked or underbanked. It completely contrasts with the belief that most adults still rely on traditional banking or credit unions for their money management and savings. Another report from the Federal Reserve also stated that around 16% of US adults are underbanked.
What does this term mean?
How are we related to this?
Well, if you are availing of any other financial service but banking to cater to your daily financial transactions, the terms unbanked and underbanked are completely related to you.
Let us understand how?
What does being underbanked or unbanked mean?
Before we move on to the logistics of these terms, let us understand the basics. Being underbanked or unbanked means, though you have a bank account, you rely on other alternative financial services to manage your funds. These services include money orders, check to cash, payday loans, and prepaid debit cards.
According to Federal Reserve, people go unbanked or underbanked because they are either low-income, less educated, or belong to a particular racial or ethnic minority group.
If sources are to be believed, in the United States,
- 14% of people with income less than $40,000 are unbanked. 1% of people with income more than $40,000 and more are unbanked.
- 12% of those with a high school degree or less are unbanked compared to 1% of graduates.
Unbanked population in the World
According to data, the majority of the unbanked population resides in developing countries. Seven countries have most of the world’s unbanked population:
- China - 13 %
- India - 11%
- Indonesia: 6%
- Pakistan: 6%
- Nigeria: 4%
- Mexico: 3%
- Bangladesh: 3%
How can you bank the unbanked or underbanked?
There is always a higher risk involved in dealing with financial transactions when you are unbanked. Though reports claim that the number of people who are using these means of financial management is reducing, a significant population still opts for ways other than the traditional banking system for routine financial transactions.
There are various ways to convince the people to go from underbaked or unbanked to operate in a secured financial system.
Reduce Barriers
One of the major reasons for people to remain unbanked is the complicated banking system. Especially in the United States, people believe that having a savings bank account is far more expensive and away from their reach. Though it is true that to create a savings account, banks charge certain fees. Also, banks ask for a minimum balance. It becomes difficult for the people from the lower-income group to maintain their minimum balance in their accounts.
If these barriers are reduced, even people from lower-income groups can convert more people towards the traditional banking system. So, here are 10 personal finance podcasts only for you.
Making banks more Accessible
Most people who are either unbanked or underbanked have one excuse, Who will visit the banks every single time? It cannot be denied that after the introduction of mobile banking, much banking work can be done through your smartphones itself through mobile banking applications.
But you still have to visit the bank because it is also true that in some branches, certain operations have to be carried out only in the bank branches. If the banking hours and locations are not convenient for the people, they will naturally not opt for banking solutions for financial management. Therefore, making it more accessible and user-friendly is the only solution for attracting people with no bank accounts.
Focus on Credits and Loans
People will be more attracted to opting for traditional banking services when they are offered offers on loans and credit cards. About 10% of the US population is credit invisible. If these credits are more publicized, more people will know more about the schemes. These schemes can prove to be a gateway for more people to opt for banks rather than other financial alternatives.
Financial Literacy
Most people who are unbanked or underbanked are either belong to the low-economic scale or are not educated enough. Therefore a proper basic financial system is needed for people to understand the working and structure of the banking system. This is why financial wellness is important for women?
Conclusion
A proper financial system is key for any country to prosper. The traditional banking systems are one of the most secure ways for routine financial transactions and management. More people opting for traditional banking, more money flowing within the financial system of the country.
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