Focus Group Findings on Prepaid Debit Cards
This fact sheet focuses on the lessons learned from consumers who purchase and use prepaid debit cards.
More infoIntroduction
Banking is a cornerstone of financial security. A safe, affordable deposit account enables families to securely put away money, affordably pay bills and better plan for the future. Without government-insured checking accounts, low-income families operate on the financial fringe. These unbanked families, those without a checking or saving account, conduct business entirely in the cash economy or use costly alternative financial services (AFS) providers, including check-cashing outlets. Families without bank accounts struggle to meet their basic financial needs, much less save for a rainy day or long-term goals.
To inform public efforts that promote safe and affordable bank accounts, the Pew Health Group developed a portrait of the financial services usage and banking behaviors of low-income households in Los Angeles. In 2009, the Safe Banking Opportunities Project began a survey of 2,000 low-income households in Los Angeles, including 1,000 households with at least one bank account and 1,000 households with no bank accounts. The first phase of the survey was conducted from July to September 2009, followed by the second phase from May to September 2010. Our survey examined households in eight low-income neighborhoods around Los Angeles, including four targeted by the Bank on LA pilot effort to bank the unbanked (see page 16).2
In July 2010, we published findings from Phase I of the survey in Unbanked by Choice.3 There, we reported on the different patterns of financial behavior among banked and unbanked families, delving deeply into the types of services used by low-income households and the factors influencing their participation in different segments of the financial marketplace. In Phase I, we found that most of the Unbanked have never had bank accounts and we identified the alternative strategies that these households use to manage their money.
This report builds on the findings presented in Unbanked by Choice to develop a more refined portrait of the financial behavior and needs of low-income communities in Los Angeles and to identify the effects that banking practices and the local efforts to bank the Unbanked have had on these communities. We seek to improve the effectiveness of efforts to bank the Unbanked and to promote policies that enable low-income families to maintain and fully use their bank accounts as productive clients of mainstream financial institutions.
Our analysis of the data gathered in this follow-up survey of financial services behaviors and household financial condition indicates the following key findings:
- The unbanked population persists in Los Angeles. Despite local efforts to bank the Unbanked, more families left banking than joined banking during the survey period. We find that there was slightly greater adoption of banking and significantly less movement out of banking in the neighborhoods targeted by Bank on LA, a public– private initiative to bring families into banking.
- Low-income households in Los Angeles face successive barriers to getting a bank account, staying banked and using their accounts fully. While households that had never had a bank account cited minimum opening balance requirements and lack of proper identification to open an account as the major reasons they remain unbanked, households that left banking most often cited unexpected or unexplained fees as their reason for closing their bank accounts. Many banked families—crossover customers— continue to use check cashers and other nonbank financial services because of concerns over transparency and liquidity. Getting unbanked individuals to open bank accounts is an important start, but it is only the beginning.
- Banking is associated with savings among the working poor. Those who had bank accounts were more likely to save and, in tough times, were better able to weather the economic storm. The Banked used ongoing savings mechanisms, rooted in their aspirations for a better future for themselves and their families. Banking mechanisms are tied to financial security by reducing costs spent on obtaining financial services, promoting saving and reducing the risk of cash loss.
