PERSONAL FINANCE
Millions of Americans give bank accounts a miss
June 25, 2007
By Jeannine Aversa
Washington - Grandma stuffing money under the mattress is not the only one living outside the banking system.
Between 10 million and 28 million people in the US are forgoing traditional financial institutions because of mistrust, cultural and language barriers, or a belief that by the time all the bills are paid, there will be nothing left for an account.
That can be expensive and risky. People can run up big fees to cash cheques and pay bills, as well as being targets for thieves.
The bankless are estimated to earn $510 billion a year in income. Seeing a business opportunity, banks are trying to draw in these potential customers. So are cheque cashing businesses and retailers.
Many people, however, still resist, preferring to remain in the financial shadows.
According to the Federal Reserve, about one in 12 families does not have a bank account. The number is higher for the poorest, nearly a quarter of families earning less than $18 900 (R134 000), the Fed says, citing 2004 data.
For some, like Rosa Alvarez, the financial choices can be bewildering. "I don't understand about this bank stuff."
A nagging fear that she might make a mistake "if I don't keep up with it right or something" keeps her from opening an account. She had one once, briefly. But she had trouble keeping track of her balance. She thinks that when the account closed, she owed the bank $12.
Many opt to do their financial transactions at a cheque cashing outlet, but these charges can add up.
A Consumer Federation of America survey of cheque cashing outlets found that on average, it cost $24.45 to cash a $1 002 social security cheque last year. A blue-collar worker pays an average $19.66 every week to cash a $478.41 cheque.
Having a bank account can be expensive, too, if it is not managed wisely.
Failure to keep track of an account balance can incur a penalty of between $20 and $35 each time a cheque is bounced or an account is overdrawn.
The proportion of families that did not have bank accounts decreased gradually from 1989 to 2001, then levelled off.
Federal Reserve research has found that the most common reason families gave for not having cheque accounts was that they did not write enough cheques to make it worthwhile. Many people said they did not like dealing with banks.
Potential perils for the bankless include theft and forgetting where you stashed your cash.
There is also a long-term impact for those who opt to do without banks. The ability to establish good credit through a bank is crucial to getting competitive interest rates on loans. Those with spotty credit are charged higher rates. - Sapa-AP
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