Banking the poor: Policies to bring low- and moderate-income households in the United States into the financial mainstream

Abstract

Twenty-two percent of low- and moderate-income American families - over 8.4 million families earning under $25,000 per year - do not have either a checking or savings account. Most of the unbanked are low- or moderate-income: 83% of the unbanked earn under $25,000 per year. Many of the "unbanked" as well as other households using alternative financial services - the "underbanked" - face high costs for basic financial services. I first explain the consequences of inadequate access to banking services. In † 9.2, I explore key barriers to banking the poor as well as nascent efforts to overcome these barriers. In † 9.3, I analyze changes in the electronic payment systems that hold out promise for banking the poor at lower cost and risk than in a checking account paradigm. In † 9.4, I propose fundamental reforms to transform financial services for the poor. I then conclude. © Springer-Verlag Berlin Heidelberg 2007.