Unbanked By Choice
A Look at How Low-Income Los Angeles Households Manage the Money They Earn

WHO ARE THE UNBANKED? 

• Most of the Unbanked have never had a bank account. Almost two-thirds of unbanked individuals in our survey (63%) have never had a bank account. Thus, they constitute an untapped market for banks. More than one-fifth (22%) of the Unbanked who have had accounts have voluntarily left the mainstream banking system, indicating a high level of customer dissatisfaction. Some of the Unbanked (9%) were expelled from their banks and are now unable to get an account. Only 3% of those unbanked in the United States were banked in another country.
• About two-thirds of the Unbanked use AFS exclusively. The most popular AFS service for this group is bill payment (74%). A smaller, but substantial group (40%) uses check-cashing services. Other common transactions at Los Angeles’ AFS providers by the Unbanked include purchasing prepaid calling cards (56%) and money orders (51%).
• Nearly one-third of the Unbanked use cash only. Fully 29% of the surveyed Unbanked live and transact without the assistance of a bank or an AFS provider, making the cash economy segment in Los Angeles’ neighborhoods even larger than previous national, state or regional estimates.8 Given the size and demographics of the overall Los Angeles market,⁹ this suggests that hundreds of thousands of Angelenos live “off the grid” of the mainstream economy.
• The cash economy remits more than any other sub-segment, despite having the lowest incomes. Most unbanked households live below the federal poverty line, with a median annual income between $10,000 and $14,999 for a typical family of five. Unbanked households purchase less housing and amenities than their banked counterparts, but the cash economy segment sends similar or greater amounts of money to their families in other countries than the banked segment. Remittance services to send money overseas continue to be highly used in Los Angeles by both banked (29%) and unbanked (33%) residents. Average monthly remittance amounts range from $189 (AFS only) to $238 (cash economy) per transfer. Members of the cash-only segment make the highest average monthly transfer, sending nearly $50 per month more abroad than their unbanked counterparts who use AFS.

WHO ARE THE BANKED?

• Banked families are more financially secure. While all these respondents are low income, banking correlates with a somewhat increased income. The Banked have a median annual income range between $15,000 and $24,999, while the Unbanked have a median annual income range between $10,000 and $14,999. The average estimated monthly expenditures for Banked households is $1,712, whereas for Unbanked households it is $1,329, for families averaging 4.4 and 4.7 persons, respectively.
• More of the Banked save than the Unbanked. More than twice as many banked (24%) as unbanked (11%) respondents report they are earning enough to pay their bills and save for the future. About half of all surveyed, Banked or Unbanked, say they are making enough to pay bills, but not to save. The Unbanked say they “cannot make enough money to pay their bills” at a higher rate (38%) than the Banked (27%). Among the Banked, nearly all (91%) safeguard at least some of their cash savings in a bank. Nearly half (47%) keep all of their savings in a bank. The survey did not ask where the Unbanked keep their savings.
• The Banked are loyal bank customers who consume a variety of bank services. More than 80% of the Banked patronize a single financial institution. Their banking relationships are long term: 40% have been banked more than 10 years, 69% have been banked for five years or more and 88% have been banked more than one year. They regularly use an average of five products or services, including ATMs, debit cards, checking accounts, check-cashing services (at either a bank or AFS provider) and savings accounts. Roughly one-third (34%) of bank customers in the study’s low¬income markets use credit cards, less than half the national average (73%).10 Those in the crossover sub-segment also are apt to use money order and remittance services.
• Many of the Banked also use AFS regularly. Over one-third (37%) of the Banked willingly and regularly use AFS to supplement banking services. Our findings suggest that this crossover segment is substantially larger in low-income Los Angeles neighborhoods than prior national, state or regional estimates indicate.¹¹ Most of the crossover segment (78%) use AFS at least once a month, most often (15%) for cashing checks.
• Even if paid in cash, banked persons are more likely to save. If paid in cash, 88% of the Unbanked will spend with no intent to save. Among banked individuals paid in cash, however, 41% will deposit some or all of the wages into a bank.

Read Full Section: Key Findings (PDF)