Friday, December 4, 2015

DC's unbanked population twice regional rate

Nationally, one in every nine households (11%) in American cities with 200,000 or more residents are unbanked.   This means that people don't have a checking or savings account.   Those unbanked in DC amount to 11.8% of the population.   Regionally, 4.3% of the population is unbanked.

This information and more is available in the new estimates from CFED in their Assets & Opportunity Local Data Center.

There is deeper meaning to this data.   Consider how much more powerful the DC Earned Income Tax Credit (EITC) could be when claimants have bank accounts.   Unbanked tax filers, according to Brookings' Alan Berube and others, commonly use high-priced refund loan products.   Berube et al. also write,

In the Washington, D.C. area, taxpayers claiming an Earned Income Tax Credit (EITC) of $1,500 spend, on average, more than 10 percent of this amount on tax preparation, electronic filing and a refund loan if they use a commercial tax preparer. One local preparer’s prices were typical of those for national chain preparers: $60 for preparation of a federal return with the EITC, $34 for a state return, $20 for electronic filing, and up to $90 for a refund loan, for a total of $204. (The Price of Paying Taxes:How Tax Preparation and Refund Loan Fees Erode the Benefits of the EITC (PDF))

In 2002, University of Michigan Law School's Michael S. Barr testified before the Senate Committee on Banking, Housing, and Urban Affairs about the unbanked.   In a related essay, he described the high costs:
  1. Basic financial services cost a lot.   Without a bank account, people must rely on check cashing establishments.   In 2000, the FDIC estimated that a worker making $12,000 a year would spend $250 to cash paychecks.
  2. Saving is hard without a savings or checking account.   "Bill Gale of the Brookings Institution has shown that, after controlling for key factors, low-income households with bank accounts were 43 percent more likely to have financial assets than households without bank accounts."
  3. "the unbanked are also largely cut off from mainstream sources of credit necessary to leverage their hard work into financial stability. Without a bank account, it is more difficult and more costly to establish credit or qualify for a loan. A Federal Reserve study found that a bank account was a significant factor - more so than household net worth, income, or education level - in predicting whether an individual holds mortgage loans, automobile loans, and certificates of deposit." (Banking for the Unbanked (PDF))

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