Is a Bank Account Required to Build Financial Security?

Banks and Check Cashers

Is a Bank Account Required to Build Financial Security? (Tweet This!)

Dr. Lisa Servon’s recent Op-Ed in the New York Times asks whether a bank account is required to build financial security.  In considering this challenge, I was reminded of losing my wallet not too long ago.

Between the morning marathon of getting my three daughters out the door for school and the walk to the subway, my wallet disappeared into thin air.  Standing at the turnstile, my head swirled with questions and decisions:  How was I going to get to work without a debit card to pay for a new MetroCard?  How quickly could I get to a computer to cancel my ATM and credit cards?  Unsure if my husband helped himself to part of my last ATM withdrawal, how much cash did I actually lose?

First I scrambled, running back home to raid my 8-year-old’s piggy bank so I had enough quarters to get to work. Not only did I pay a $1.00 surcharge for a new MetroCard, but also spent $2.50 for the ride, where normally the cost is auto-paid monthly with pre-tax dollars, effectively bringing the cost per ride to closer to $2.00.  At work, I had to borrow a colleague’s Amex corporate card so I could make a business lunch happen.

Over the next few days, I carefully planned all my transactions three or four steps ahead until I replaced my wallet’s contents.   And I’m lucky of course:  If I had a prepaid debit card, or held on to a personal check as a form of savings, I might have suffered a much greater loss.

Tens of thousands of people probably lose their wallets everyday, but 17 million people manage their finances without a bank account.  For them, the same scramble, premium expense, borrowing and enhanced risk that I experienced when I lost my wallet is actually the norm.  And for most, access to low-cost and transparent banking is the solution.

Except when the options are neither low-cost, nor transparent.

Take Honey, a Clinic customer.  Honey is a 34 year-old Newark resident who met with one of the Clinic’s Financial Coaches for help with overwhelming credit card debt she incurred when dealing with a medical problem.  As the Coach assessed her income and expenses, a monthly $20.00 charge for consistent access to her credit report by her bank—a reputable, well-known, national financial intuition— was an easy target for trimming.  Honey was relieved to know the same information was freely available through annualcreditreport.com.

This appreciation for the true costs of banking underlies the Clinic’s reasoning for modifying our banking outcome.  As Dr. Lisa Servon mentioned in her recent New York Times Op-Ed, the Clinic used to measure success as “increased use of mainstream services and lowered use of fringe services.”

This was also a topic Dr. Servon and I discussed on a recent panel.  Shortly after the Clinic’s founding in 2005, we observed the increasing prevalence of products and services like overdraft protection or credit monitoring had mainstream banking services looking more predatory.  Working in impoverished communities we also were recognizing that many “fringe” services were, in fact, accessible and transparent.

Thus, as an organization whose mission is to build the financial security of working poor people, we decided to remove our value-laden categorizations and instead encourage customers to “do the math.”  Today we focus on the cost of banking products and services instead.

By helping our customers focus on being the best possible consumers, the Clinic believes we are in a better position to help them build their financial security. For Honey, this meant $240.00/year back in her pocket;not an insignificant sum for someone whose annual salary is in the mid-$20,000s.  For many other Clinic customers, this might mean having a savings account, but keeping day-to-day transactions in cash, or becoming a member of a community development credit union. For others, it means accessing check cashers because accurately anticipating costs is more valuable to them than a relationship with a mainstream bank.

There are so many different paths to greater financial security that we should not assume they all include a walk through a bank.