Skip to Main navigation Skip to Left navigation Skip to Main content Skip to Footer

University of Minnesota Extension

Extension is almost done building a new website! Please take a sneak peek or read about our redesign process.

Extension > Family > Financial Capability > Culture and Resources > Being Unbanked: What Is It? What Are the Implications?

Print Icon Email Icon Share Icon

Culture and Resources

Being Unbanked: What Is It? What Are the Implications?

Shirley Anderson-Porisch, Extension Educator — Family Resource Management

2006. Revised April 2016 by Antonio Alba Meraz, Extension Educator — Family Resiliency.

In 2013, there were nearly 9.6 million unbanked families in the United States. Most unbanked families have less than a $25,000 annual income. Understanding and addressing the needs of unbanked people may impact future services of the U.S. banking system.

What 'Unbanked' Means

Unbanked is commonly used as an "umbrella" term to describe diverse groups of individuals who remain outside the banking mainstream for many reasons. The term "unbanked" means that a person or their spouse or partner does not have a checking or savings account.

People are unbanked for many reasons including: lack of understanding about the United States banking system and expectations for having a bank account, past negative banking experience in the United States or in their homeland, lack of appropriate identification and/or documentation needed to open a bank account, unstable living situation, and cultural conflict including bank practices that vary with personal beliefs.

Why People Are Unbanked

People are unbanked for many reasons: lack of understanding about the U.S. banking system and expectations for having a bank account, past negative banking experience in the United States or in their homeland, lack of appropriate identification and/or documentation needed to open a bank account, unstable living situation such as loss of employment and/or significant loss of income, and cultural conflict including bank practices that vary with personal beliefs.

Who Is Unbanked

The most common groups of unbanked people in the United States include low income individuals and families, those who are less educated, female-headed households, young adults, families living in rural communities as well as select urban areas, and immigrants. It is estimated that African Americans are four times more likely to be unbanked that European Americans. The unbanked population also includes the "formerly banked" who have negative credit histories that prevent them from opening financial accounts.

What We Know About the Unbanked

A 2004 Joint Center for Housing Studies survey of low income households showed that unbanked people have an understanding of banks, but were unable to show appropriate identification documents needed for opening accounts, had more difficulty maintaining minimum account balances, and were more likely to write checks even when accounts had insufficient funds. Researchers from the Federal Reserve System reported in 2012 that unbanked consumers may use alternative financial services such as check cashing, payday, title, pawn shop, or rent-to-own services.

Researchers from the Institute for Latino Studies at the University of Notre Dame concluded in 2006 that the principal barriers to Latino use of financial services were inadequate documentation, inconvenient products, and lack of knowledge about and trust in U.S. financial institutions and services.

Why It's Important to be Banked

Although there continues to be opportunities to pay cash only for goods and services, handling payments through a bank account provides a gateway for households to enter the financial mainstream and become owners of financial assets. Research indicates that those who own bank accounts are more likely to own other assets including accounts related to savings, credit, and insurance. Those without financial accounts are less likely to own a home and a car. Consumers without a relationship with a mainstream financial institution also pay high transaction fees for services such as check cashing.

Many immigrants may have been unbanked in their homeland. Even though it is not considered a universal need to be banked in the United States, there are advantages for people with bank accounts. In the U.S. economy, banked people have the tools to save, build assets, and become part of what in the early 2000s was called the "ownership society." The ownership society includes those who, through a lifetime of bank account ownership, enhance their ability to manage money and make significant financial decisions regarding education, homeownership, health care, self-employment, and retirement.

How to Decrease the Number of Unbanked People

In a 2006 analysis of the Chicago Area Latino Survey, researchers found that first generation of Latinos who are naturalized U.S. citizens are almost twice as likely to use financial services such as checking accounts and electronic payment as first-generation Latinos who are non-U.S. citizens. Because consumers who don't have a U.S. driver's license or a Social Security number, generally have difficulty accessing financial services, banks are more frequently accepting other forms of documentation. Two newer options for proving identity are the Matrícula Consular or Consular Registration, an identity card issued by the Mexican Consulates; and the Individual Tax Identification Number (ITIN) issued by the Internal Revenue Service to those not eligible for a Social Security number.

Other forms of advanced electronic technology provide new opportunities for transitioning the unbanked population into a banking relationship including discount and grocery stores with a traditional bank location that offers services like check cashing, money orders, and remittance services; multi-functional ATM machines that allow transactions without bank visits; stored value cards for deposits such as salary or tax refunds; and lifeline savings accounts. Researchers from the Federal Reserve System indicated that use of mobile phones may prove to be another alternative to reduce the number of unbanked consumers because nearly two-thirds of unbanked consumers have a mobile phone.

In addition to the strategies described above, financial capability workshops provided by Cooperative Extension and by community-based organizations in English and other languages help to decrease the number of unbanked people. Contact our Financial Capability Team or our Latino Financial Literacy Program today to discuss hosting a workshop in your community.


Bair, S. C. (2002). Improving access to the U.S. banking system among recent Latin American immigrants. Amherst, MA: Center for Public Policy and Administration, University of Massachusetts — Amherst.

Berry, C. (2004). To bank or not to bank? A survey of low-income households (Joint Center for Housing Studies Working Paper Series). Cambridge, MA: Joint Center for Housing Studies.

Burhouse, S., Chu, K., Goodstein, R., Northwood, J., Osaki, Y., & Sharma, D. (2014). 2013 FDIC National Survey of Unbanked and Underbanked Households. Washington, D.C.: Federal Deposit Insurance Corporation. 

Gross, M.G., Hogarth, J.M., & Schmeiser, M.D. (2012). Use of Financial Services by the Unbanked and Underbanked and the Potential for Mobile Financial Services Adoption. Federal Reserve Bulletin, 98(4).

Paulson, A., Singer, A., Smith, J., & Newberger, R. (2006). Financial Access for Immigrants: Lessons from Diverse Perspectives [Monograph]. Washington, D.C.: The Brookings Institution.

Stuhldreher, A., & Tescher, J. (n.d.) Breaking the Savings Barrier: How the Federal Government can Build an Inclusive Financial System [Policy brief]. Washington, D.C.: New America Foundation.

Taylor, D. G., Gallagher, M., Menchaca, F., & Newberger, R. (2006). Emerging Market and Financial Services in the Latino Community: Problems and Strategies. Latino Research @ ND, 3(1).

Woodstock Institute. (2000). Community-Bank Partnerships Creating Opportunities for the Unbanked. Chicago, IL: Woodstock Institute.

  • © Regents of the University of Minnesota. All rights reserved.
  • The University of Minnesota is an equal opportunity educator and employer. Privacy