Despite The Economic Recovery and Bull Market, Many Americans Are Feeling Left Out

The Dow is over 20,000 for the first time, unemployment is declining, and the Federal Reserve recently raised interest rates for the second consecutive year. All of these signs point to an American economy that’s growing.

Yet while that may very well be the case, many Americans aren’t feeling the benefits. According to a recent FDIC study, 27 percent of U.S. households were either unbanked or underbanked in 2015. And while that’s a slight improvement from the previous survey in 2013, that means 22 million people still lack access to deposit-insured savings, credit, and other financial services.

The survey defined an unbanked household as one where nobody has a bank account. Underbanked households have a bank account, “but look outside the banking system to meet transaction or credit needs.”

Notably, the study found that the unbanked rate among Hispanic and black households both fell around 10 percent in the two years since the last study. However, the amount of unbanked Asian households rose from 2.2 percent to 4 percent.

Respondents to the FDIC’s study cited a variety of reasons for not having a bank account. Nearly 39 percent said they don’t have enough money to keep an account open. Others said bank fees are too high to make it worth keeping their money in an institution, and some said they don’t trust banks at all.

Customer trust is something many banks have struggled with since even before the 2008 financial crisis. So what are all these Americans turning to for financial support? Prepaid debit cards and payday loans are well-known, if questionable, alternative banking sources. But it turns out many of these consumers are turning to pawn shops.

A recent study by online pawn shop exchange PawnGuru found that pawn shop regulars are 2.5 times more likely to not have a bank account. Pawn shops can be used to take loans out on possessions up as collateral, as well as sell goods for cash to make ends meet.

This might be surprising to some, but according to PawnGuru COO Jordan Birnholtz, it’s the reality of life for the 30 million Americans who rely on pawn shops for financial needs.

"Underbanked consumers are the primary users of pawn shops," Birnholtz said in an interview with Benzinga. "People who don't have access to normal credit or banking services often rely on pawn shops to make ends meet.”

Alternative financial services aren’t likely to go away anytime soon, Birnholtz added.

“Pawn shop regulars are jaded by their experience with banks,” he said. “Banks want to extract as much cash as possible from low-income people. They levy high overdraft and low-account fees, and make them difficult to opt out of. This discourages millions of Americans from getting a bank account, undermining their long-term financial stability.”

Solutions are hard to come by, with some calling for the Trump administration to take regulatory action to prevent predatory financial practices against the underbanked. But considering his history in business and the fact that both houses of Congress are Republican, it seems unlikely that more regulations will come to law.

Banks are feeling the pressure to produce better products and offer more transparency, given competition from a burgeoning fintech sector. Some fintech companies are offering debit cards and money transfer services without the strings banks traditionally attach.

However, without major support from either the private or public sector, Americans will continue to have insecure long-term financial futures. Without the prospect of secure retirements—or even the confidence that they can make this month’s rent—many Americans will be locked out of the American Dream.

Photo credit: Nick Ares, Flickr