Money Under The Mattress? Millions Do It

As Many As 28M People Forgo Banks Due To Mistrust, Language Barriers And Lack Of Money To Save

(AP)  Grandma stuffing money under the mattress isn't the only one living outside the banking system.

As many as 28 million people in the United States are forgoing traditional financial institutions because of mistrust, cultural and language barriers or a belief that by the time all the bills are paid there will be nothing left for an account.

That can be expensive and risky. People can run up big fees to cash checks, pay bills and meet their other financial needs. Walking around with large amounts of cash can make them a target for thieves.

The bankless are estimated to earn hundreds of billions of dollars a year in income. Seeing a business opportunity, banks are trying to draw in these potential customers. So, too, are check-cashing businesses and retailers, including Wal-Mart.

Many people, however, still resist, preferring to remain in the financial shadows.

They tend to be minority — Hispanic or blacks especially — as well as low income and young.

According to the Federal Reserve, about one in 12 families — 8.7 percent — does not have a bank account.

The number is higher for the poorest — nearly a quarter of families earning less than $18,900, the Fed said, citing 2004 data.

For some, like Rosa Alvarez, the financial choices can be bewildering.

“I don't understand about this bank stuff,” says Alvarez, 54, who lives in Texas. A nagging fear that she might make a mistake “if I don't keep up with it right or something” keeps her from opening an account. She had one once, briefly. But she had trouble keeping track of her balance. She thinks that when the account closed, she owed the bank $12.

Carlos Maren, 25, a cook, is afraid that if he opens a bank account in the U.S., he will get hit with fees for not keeping in enough money or for taking out more money than he has.

“My uncle sometimes says that it's expensive ... because if you don't have money in the account, (the bank) is going to be charging you,” Maren says.

Leonel Mendoza, 32, a hospital worker, is not comfortable with banks in this country.

Both he and Maren do their financial transactions at a check-cashing outlet in the Adams Morgan neighborhood of Washington, D.C. They say it is convenient and they like knowing upfront what they will be charged to cash their paychecks, buy money orders, and, in Maren's case, wire money to his native Mexico. He has a bank account there.

“It's not real expensive,” Maren says.

Yet those charges can add up.

A Consumer Federation of America survey of check-cashing outlets, found that on average it cost $24.45 to cash a $1,002 Social Security check last year. A blue-collar worker pays an average $19.66 every week to cash a $478.41 handwritten paper check.

Having a bank account can be expensive, too, if it is not managed wisely.

Failure to keep track of an account balance can incur a penalty of $20 to $35 each time a check is bounced or an account is overdrawn.

“It can be costly to be outside the banking system. The poor pay more,” says John Caskey, economics professor at Swarthmore College.

“On the other hand, if all you did is take that low-income person, living paycheck to paycheck and moved them into the banking system and they are bouncing checks and incurring fees, you haven't done much and you may not have done them a favor,” Caskey says.

Although there is no federal requirement for banks to offer low-cost, no-frill accounts, some do.

“Some have very low dollar accounts. Some have accounts that have to maintain a minimum balance,” says James Ballentine, director of community and economic development at the American Bankers Association.

Ballentine's advice: “Do some shopping around.”

The share of families without bank accounts decreased gradually from 1989 to 2001, then leveled off, the Fed said.

Banks have an economic interest in reeling in people outside the banking system — 10 million to 28 million individuals who earn $510 billion a year — and turn them into customers who eventually may need loans to buy homes, cars and other items.

Banks are working through community groups to ease fears, build trust and to educate people about financial options. It is a challenge that can take years, bank officials say. Moreover, what may work in Houston does not necessarily prove fruitful in Fresno, Calif.

Adding to the challenge, the bankless are slowly spreading out. Hispanics and immigrants have moved beyond traditional ports of entry, such as big cities on the coasts and in border states; they are settling in Tennessee, North Carolina and Indiana. In the same way, people without bank accounts have move around.

The FDIC has spearheaded a project to help bring the bankless into the financial mainstream. Financial institutions, community groups and others are teaming up in nine markets — including parts of Alabama, Chicago, Los Angeles and Wilmington, Del. — to provide services including affordable small loans, check cashing, savings and financial education and for wiring money outside the U.S.

Nationwide, there are fewer banks in poor neighborhoods versus wealthy ones but the difference is small, according to the Federal Reserve.

In some neighborhoods, however, there are no banks conveniently located. Federal banking regulators just weeks ago identified 3,500 middle-income neighborhoods in rural areas — from parts of Clarke, Ala., to parts of Washakie, Wyo. — that they consider to be underserved by financial institutions.

Federal Reserve research found that the most common reason families gave for not having checking accounts was that they did not write enough checks to make it worthwhile. Many people said they did not like dealing with banks.

Some — regulators could not provide a percentage — are in the country illegally. Without some proof of identification such as a driver's license or a passport, they cannot set up a bank account.

Check cashers and other outlets give them a financial lifeline.

“You purchase the transactions you need, when you need them. Prices are posted. There are no surprises,” says Joseph Coleman, president of Rite Check Cashing Inc., which operates stores in New York City's Harlem neighborhood and the borough of the Bronx.

New York is among the roughly two dozen states plus the District of Columbia that regulate check-cashing fees.

“We are like financial oxygen. People in our communities rely on us,” says Coleman, who once worked for Citibank. He hires people who speak languages in addition to English, easing communications with the customer.

Is the average 2 percent fee that customers pay for cashing a paycheck too high?

I would say no,” says Cynthia Vega, spokeswoman for the Financial Service Centers of America, whose members include check cashers. Customers pay for the convenience of having quick access to their cash, she says.

Over the years, technological innovations have spurred a range of products for people without bank accounts.

Some employers, not wanting to deal with the expense of paper checks, load employees' paychecks onto electronic cards that can be swiped at the supermarket, restaurant and other places or used to pay bills. These cards have federal protections, such as liability limits for unauthorized use, says Jean Ann Fox, director of consumer protection at the Consumer Federation of America.

Check-cashing outlets also sell electronic cards on which money from paychecks or a tax refund can be loaded. These cards on average cost $10.86, the federation says. Fox says some of these cards can carry usage fees and may not have the same protections by bank-issued debit or ATM cards.

Wal-Mart, the world's largest retailer, recently announced it will sell for $8.94 each a prepaid Visa debit card. This step is aimed partly at shoppers who do not have bank accounts. Those cards have protections against theft and loss.

Alvarez, a Texas cake decorator, does not bother with any of these options. She cashes her check for free at the supermarket where she works and hides her cash in books at home.

“When I need money for gas, I get a little bit out,” she says. “When I pitch in for groceries, I get it out. But sometimes I'm scared the house can burn down. My money will be burned with it,” she says. Or, there could be a break-in, she worries.

Some of the potential perils for the bankless include theft, forgetting where you stashed your cash or losing your money.

“If you have most of your money in a bank. You have protection. If you are carrying it all in cash, it is easy to lose, easy to be stolen and easy to spend,” Fox says

In Prince William County, Va., there were 351 robberies last year and more than 40 percent involved Hispanic victims — many of whom were new to the country — who had large amounts of cash on them, says Police Chief Charlie Deane. Many of the robberies occurred on paydays — Thursday or Fridays.

“The criminal element is aware that many of these people do not put their money in a bank,” Deane says. “Many of these individuals are living in conditions where they have to share common space, so they often don't have ways of securing their cash where they live. So therefore they carry the cash with them,” he says.

The robbers, when caught, have told police they targeted the victims because “they knew they were carrying cash,” he said.

There also is a long-term impact for those who opt to do without banks.

“The ability to sock away money for a rainy day and to cover emergency costs are enhanced if somebody is using a mainstream financial institution and begins to get on a pattern of regular savings,” says Barry Wides, deputy comptroller of community affairs at the Office of the Comptroller of the Currency.

The ability to establish good credit through a bank is crucial to getting competitive interest rates on loans for homes, cars and other items. Those with spotty credit are charged higher rates.

Despite all her fears about banks, Alvarez says one day she would like to become a steady bank customer. She thinks it will help her build a nest egg and feel more financially secure.

“When I cash my check, I'd maybe put $25 in savings that would never get touched until something like an emergency happens,” she says.

[shanev137]

The extent of my banking consists of a few clicks of my mouse button. I seriously can not remember the last time I ever walked inside a bank.

[sparks224]

"Tell me, is there anything in the U.S. that isn't corrupt?"
Posted by erasmus6

No.
But if it makes you feel better, the neo-con word for corruption is "free market".

[erasmus6]

Tell me, is there anything in the U.S. that isn't corrupt?

[aznyron-2009]

I am no fan of banks since they were deregulated under the Reagan adm. but let be honest you need them but there is another way you can look in to credit unions in your community I bank with a credit union and I find it good not perfect but good also make sure you can check your account on line if not dont waste your time with that credit union now on another note you are suppose to record all your check writings so you do not over draw on your account if you can not read or ad then maybe you should enroll in night school and lern I live in Thailand I can not read write or speak the language but I know how to do banking I have two bank accounts in this country plus my credit union account in the USA which I transfer funds to my thai bank account for a small fee of 6 US dollars and I only do that once a month other times I use ATM and I pay for all my groc. with my ATM card which comesfrom my USA credit union if you do research you can find solotions to your banking problems I hope what I said here helps some AMEN

[ki8911]

I worked for a bank for 22 years. I saw how they kissed the buns of the rich, waived service charges for large balances and then stuck it to the little guys. Banking has gotten even more bizarre since I left over 8 years ago. I don't have a checking account, I cash my check at the local store out here in the sticks. I go into town twice a month to get money orders @ .25 & grocery shop with set amount of cash. Big banks don't want to come out to the rural areas because it isn't worth it to them financially.
I have a secure area in my home to keep my money. If my trailer burned down, yes I would be sol. But when you are one of the working poor, any way you can cut costs, you do it. At least I always know how much I have. I don't miss banks & their charges. I've seen their extortion first hand.

There is a major item no one has mentioned:THE UNDERGROUND ECONOMY!Many people deal in cash and even pay their legal and esp.ILLEGAL people in cash and deduct no social security or income taxes. These people in turn go to the check cashing store and buy money orders for bills they pay by mail. They pay cash for many things and since they have no on-the book income,get food stamps ,section 8 welfare and medicaid. They wire money back to family in Mexico or Dominican Republic or other places where the dollar can buy much more than it does here. the government gets no taxes from these people,yet ,gives them benefits that tax payers pay for. They send their kids to our public schools and don't care to learn English or obey thr laws. There are many citizens who do the same. I've seen businessmen buy property and merchandise for thousands of dollars in cash and not report the sales that they make with cash. Many will even waive the sales tax if a customer pays in cash. If you put money in the bank,even checking,you then have a record of having received money and then the IRS will audit you. If you do everything in cash,there is no record. Of course there are drawbacks doing this but for low income,day-to-day living these people live better than middle-class people who work on the books and use the banks.

[l8c6]

Some really great points on here I'll have to say. I do like the idea of sticking it to the private banking industry that truly benefits a small fraction of owners enormously and grossly underserves the masses. It's never talked about but the U.S. treasury is basically a privatized entity run by the private financial sector. The question begs what special interests own and operate the U.S. treasury?

Bernecke is I believe the absolute only federal employ of the U.S. treasury and his constituents are the special interests of the private financial sector.

[tnt1954]

many check-cashing places are laundering fronts
for the 5 million dope lords, 60 million
crooked judges who fight the war on dope. on
the dope lords sides. then there is the
laundering of counterfeit money. all monies
from all sorts of nations. what to capitalize
on next? people even capitalize on life after
death. i doubt seriously if it exists.
they capitalize on your death at funeral homes,
crematories etc. also. capitalizing on the
sick happens 24/7/366. what will they
capitalize on next? they capitalized very well
on communism also. it was a capitalist invention
to get goods and services cheap and sell dear.
beats stealing them from other capitalists.
viva pirate capitalism!

[l8c6]

The illegal Mexicans are the smartest of all. The maintain close social networks, work the U.S. aid to immigrants, avoid U.S. taxes, remain financially stealth aided by illegal work arrangements with U.S. companies and business looking for their own anonymity then wire the booty back to Mexico via a system that most likely does it's best to remain stealth due to the shady dealings of most of it's customers.

[blackbug99]

Banking is the biggest scam in world history. It only serves those who have money. Almost every penalty a bank can charge is inflicted upon the poorer among us. LOL, if I'm just scraping by, I get a $12 fee for not enough money in the account. Because I didn't know that, I get charged $35 or more for a check that I wouldn't have written had I known that. How often do you think rich people have these worries? Be real. This isn't Mary Poppins. I will not get rich saving a tuppence a day.

[paris737]

The assertion that one needs to having a bank account to help them save money and also to help them establish credit are two of the main points made in this article. The truth is people don't need to put their money in a bank to save money. How are you going to save money when you have fees taken out, and your funds are linked to a check card which allow instant access to the money. If your savings is in cash at home, you aren't as likely to spend it when you're out, unless you plan to. And as for having a bank account to build credit... why on earth do people think they need credit? Credit is only needed if you finance something. People are much better off saving and paying cash rather than financing stuff on credit.

And the other point I'd like to make, is that when your money is tied up in a bank account, don't think that your financial information is kept private. It's not! Why not pay as you go? Why not keep your money at home? Why not say "no" to banks bleeding your dry with fees? Sure, money can get stolen or lost if your house burns down, but what are the chances of that? Seriously, what are the chances?

Don't let this article imply that banking is better without thinking about it for yourself!

[paris737]

This article comes off to me as a if it's a big advertisement for the Banking Industry. The overall theme of the article and it's underlying assertion that people are better off if they have their money in a bank account is very apparent and also incorrect.

When banks now charge their customers astronomical fees for bounced checks, overlimits and other problem transactions, and then also charge account fees, ATM fees, fees for cashier's checks, and other basic banking services, then customers are right to leave and they should! Don't even mention the long lines to visit a teller, the limits on your ability to get your funds, and life energy lost at ATM machines, getting bits of money out at a time. Banks no longer provide community service like they used to. Now they leach their customer's dry, unless of course their customers are millionaires... then everything is free!

[shanev137]

Don't worry, the totally electronic cashless society is almost here. The last step is to get people to buy off on a chip implant in the hand or forehead...easily done by making them look cool, trendy, and hip and by giving special benefits and large financial bonuses to all the people who get them. This way, all real citizens can be verified and all financial transactions can be scanned and stored digitally. The IRS will know who is and isn't paying their taxes. Most of our country is already at the point now where they will do anything their government (rich people) tells them to do. Technologically speaking, going to an all cashless society will be easy. Psychologically it will be harder. All that really needs to be done to get everyone on board is to make where the individual feels alienated, polarized, powerless, terrified, and financially left behind. Then, just give them the promise of a better life and convenience by the technology of trusted federally run corporations. Trust me, half of America is stupid enough to make this happen right now, so just do already and get it over with.

[zootallures2]

The system is a disaster and a total failure. The wars have cause 100 times more death and suffering than small pox. So what good is medical advances? Save a million kill to kill five million? Fear of the other animals? Now you have to fear other humans who are more deadly than the other animals. You never went to the moon nor can you leave the atmosphere of the earth, nor will you ever. You yo-yos cannot match God's technology. The moon is huge and requires no booster to keep it in orbit. Your tiny satellites can't stay up. Without a boost, they fall right back down. Yea, your social hipsters are really important...lol. Elvis is the king... or some lying retarded politician, CEO, or whatever... LMAO! You are idiots. Behold his limo...LOL!

[zootallures2]

Look at the birds, why is it that God provides for them and you have to depend on Herod? Are you less important than the birds?

- John the Baptist

[zootallures2]

"Alot of us poor can't keep a bal in the bank as we live on a small fixed income. So they are foolish...."
Posted by MichelleM99 at 12:51 PM : Jun 24, 2007

Food doesn't grow in the supermarket. There is no Cow Inc. that maufactures cows. Leave the system's hand and go the God's. He gives it all away free of charge!

[zootallures2]

Ahh; "free enterprise" - the rich get richer & the poor get pooped on.
Posted by generey at 09:45 AM : Jun 24, 2007

Only if you are stupid enough to think the rich are the providers and sustainers of life instead of God. Humans are the king of the jungle, hands down! Just go to the zoo if you need proof.

[michellem99-2009]

A lady said in thr story the store cash her check for free. Not here. The fees hurt the poor. And yes the banks charge to use debit card at store. IT is a rip, Alot of us poor can't keep a bal in the bank as we live on a small fixed income. So they are foolish to stuff their money where it ain't safe. Them robbers know that so they attack the poor,old,disabled for what a few dollars..I don't carry cash as I don't have it.I don't fully trust banks and never have but it is less costly than them check cashing places. You have to keep a record every time you write a check and debit card.I am visually impaired so I have my sighted friend record every thing in the record keeping pages.He knows cos I give him the recepts from the stores to be writ down. It is a habit I have alway done.Oh yes the bank fees are writ in first.

[zootallures2]

Soon they'll be farming out in the wilderness, bypassing the entire useless system. You may have to consider reservations for white people...

[generey]

Ahh; "free enterprise" - the rich get richer & the poor get pooped on.