"We Don't Do Banks"

Policy Paper
March 15, 2012

When asked whether he or anyone in his household has a bank account, Billy, a 24-year-old out-of-work father of two young daughters quickly retorted, “We don’t do banks.” A recent survey by the Federal Deposit Insurance Corporation (FDIC) reveals that Billy is not alone—more than 9 million American households are unbanked, meaning they have no checking or savings account. For more than a decade, policy researchers and advocates have sought to increase the use of bank accounts by low-income and minority households, both by increasing demand through education and outreach and by encouraging banks to better tailor their products to the needs of low-income consumers.

Motivating this line of policy advocacy is the assumption that low-income families would be financially better off “banked.” And there is good reason to believe this is the case: Unbanked consumers spend hundreds of dollars a year conducting routine financial transactions. However, this near singular focus on the banking status of households and its relation to poverty has prevented a richer appreciation of how low-income families manage their money.

In order to design effective public policy, it is essential to have an accurate portrait of how low-income families manage their money and use financial services—including “alternative” institutions and products, such as check cashers and prepaid cards. Understanding the preferences of consumers and current patterns of behavior in an evolving financial services landscape will enable policymakers to design more effective policy interventions to empower households with a safe and convenient way to manage money, pay their bills, and save for the future.

This brief details findings from a qualitative study of the financial attitudes and behaviors of individuals currently receiving Temporary Assistance for Needy Families (TANF) cash assistance benefits, commonly known as welfare. These findings are based on in-depth interviews with 37 CalWORKs recipients in two major California cities. A range of topics are discussed, including a family’s experience on CalWORKs, their use of mainstream and alternative financial services, and their strategies for saving, accessing credit, and planning for the future. Interviews were transcribed and coded into a number of thematic categories. The discussion below relies heavily on illustrative quotes pulled directly from these conversations. While no effort can fully capture the rich detail of the economic lives of these individuals, I have sought to distill those aspects that have important implications for policy and practice.

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