The real numbers: Unbanked and Underbanked Households in the U.S.

From my early days (beginning in 2002) researching the size and scope of the market for prepaid financial services, I consistently found a great deal of misinformation and unsubstantiated claims being bantered around by both the media and entrepreneurs which greatly exaggerated the number of adults who were either un-banked or under-banked, Those inaccurate numbers still persist today in the projections of many a start-up seeking a sliver of these markets.

Misconceptions on the market began to fade when in June 2013, the FDIC sponsored its third National Survey of Unbanked and Underbanked Households.

The study focused on collecting accurate data on the number of U.S. households that are unbanked and underbanked, their demographic characteristics, and their reasons for being unbanked and underbanked.

The survey was conducted by the U.S. Census Bureau as a special supplement to the Current Population Survey (CPS).

With the rich demographic and geographic data available through the CPS, the study presents a wealth of previously unavailable data on unbanked and underbanked households at the national, state, and large metropolitan statistical area (MSA) levels.

The survey addresses a gap in the availability of reliable, accurate, and comprehensive data on the number of unbanked and underbanked households in the United States. Some of the key overall findings from the 2013 include:

  • 7.7 percent (1 in 13) of households in the United States were unbanked in 2013. This proportion represented nearly 9.6 million households.
  • 20.0 percent of U.S. households (24.8 million) were underbanked in 2013, meaning that they had a bank account but also used alternative financial services (AFS) outside of the banking system.
  • The unbanked rate has varied from 7.6 percent in 2009 to 8.2 percent in 2011 and 7.7 percent in 2013.
    • The 0.5 percentage point decrease in the unbanked rate between 2011 and 2013 can be explained by differences in the economic conditions and demographic composition of households over this period.
    • In particular, compared to 2011, households in 2013 had slightly higher levels of employment and income, and were slightly older and better educated. These characteristics are all associated with a higher likelihood of having a bank account.
  • While relatively small proportions of U.S. households experienced major life events in the past year, households that transitioned in or out of the banking system were more likely to have experienced certain events:
    • Among households that recently became unbanked, 34.1 percent experienced either a significant income loss or a job loss that they said contributed to the household becoming unbanked.
    • Among households that recently became banked, 19.4 percent reported that a new job contributed to their opening a bank account.

While a great deal of misinformation continues to persist over the number of households and the size of the population of adults who are either unbanked or underbanked, this study should serve as the more realistic benchmark for understanding the scope of opportunities for both entrepreneurs and financial institutions to serve their communities and build their business.