Banking has never been easier, but that is not enough to convince thousands of Oklahomans to park their cash in even a simple checking account.
Oklahoma has one of the highest percentages of unbanked and underbanked households in the nation, at 34 percent, according to a 2011 survey by the Federal Deposit Insurance Corporation. About 11 percent are unbanked.
Unbanked refers to having no checking or savings account. The underbanked have a checking or savings account but, like many of the unbanked, use “alternative financial services” such as non-bank money orders or payday loans.
Experts count these groups to measure how many people are alienated from the mainstream financial system, which is the gateway to building savings and often the cheapest, most secure way to make transactions. People with little or no relationship to banking are less likely to save or own assets such as a house or car. They also are more likely to spend too much on fees for services such as check cashing, experts say.
Lack of banking is most prevalent among low-income and minority groups. In Oklahoma, more than one-third of African-American households, and nearly four in 10 Hispanic ones, are unbanked, according to the FDIC survey.
People shun banking for various reasons. They may believe they don't have enough money to get a checking or savings account. They may feel they don't need or want an account.
Some are afraid to open an account because they had bad experiences with banking fees. Others may lack the identification requirements to open one.
The unbanked and underbanked often seek out faster, more expensive services, such as pawnshops, tax-refund-based loans and prepaid debit cards.
Case in point
Steven Shepelwich, senior community development adviser in the Oklahoma City branch of the Kansas City Federal Reserve Bank, has conducted focus groups with the unbanked and underbanked to learn why and how people handle their finances without a bank.
Shepelwich recounts the experience of a bank teller who opened a free checking account by employing direct deposit of her paycheck. However, when she lost her job, the bank began charging her a fee for the checking account.
“She fell into a situation where a small problem quickly became a large crisis,” Shepelwich said during a presentation last year on the FDIC survey.
Such experiences make some people more likely to pay up-front fees for services like check cashing to avoid potential large fees down the road, he said.
Many of those who eschew banks are satisfied with their financial arrangements, Shepelwich said, although they realize they are being excluded from some benefits such as a secure place for long-term savings and access to credit. A lack of credit also can contribute to stubborn joblessness, he said, as more employers use credit checks during the hiring process, he said.
People use unconventional services because they meet certain needs, said Tammy Edwards, vice president of community development at the Federal Reserve Bank of Kansas City. Consumers like having a one-stop place, quick cash and convenient locations and hours of operation, she said.
Edwards said many families avoid banks because they get wrong information from friends and relatives.
“If that information was incorrect or incomplete, that was what they used to make their decisions,” she said, stressing that financial education is important for all consumers. “The more information you have about financial matters, the better financial decisions you'll make.”
Regardless of an individual's income or background, she said, “it's important to have a relationship with a bank, even if it is for a savings account.” Being banked with a regulated financial institution allows individuals to save, have access to fair credit and to invest, such as making payments on a house to build equity. Banks also guarantee the safety of deposits.
“Given what has happened to Oklahoma (with tornadoes wiping out homes and possessions) in the last few weeks, I would hope that those who don't have a relationship with a financial institution, they would see the importance of one,” Edwards said.
Focus on rural areas
The number of unbanked households in Oklahoma increased from 2009 to 2011, according to the surveys. However, Oklahoma City and Tulsa saw a drop, Edwards said, meaning outreach efforts need to focus on rural areas.
The Community Development Financial Institutions program, aimed at providing financial services to underserved people and communities, is active in rural Oklahoma, Shepelwich said. For instance, the Citizen Potawatomi Nation offers a loan program designed as an alternative to payday loans, Shepelwich said.
Bank On, an organization with more than 70 programs nationwide, is another method of reaching out, Edwards said. The group attempts to create partnerships among financial institutions, community-based groups and local and state governments to help those underserved by banks. Programs are offered at the city, county or state level, providing resources such as free or low-cost accounts and financial education.
Edwards said Colorado established Bank On Denver in 2009, when about 9 percent of Denver's residents were unbanked. The group targeted minority populations, offering products and education tailored to the underserved demographic. In 2011, that number dropped to 5.2 percent.
“We think that the key reason was the launch of the Bank On campaign,” Edwards said. “I have no reason to believe it couldn't be replicated in Oklahoma.”
CONTRIBUTING: Don Mecoy, Business Editor
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Oklahoma Watch is a nonprofit investigative team established to report on public policy issues in Oklahoma. It is funded by the Ethics and Excellence in Journalism Foundation, the George Kaiser Family Foundation, the John S. and James L. Knight Foundation and the Tulsa Community Foundation.