The Talk co-host and former female rapper Eve admitted recently that she did not have a bank account until she got her first big record deal at age 18. While that’s surprising, Eve joins 9 million American households which are unbanked.
Eve’s story about learning how to manage money is entertaining, but important for policymakers too. Very few of those 9 million homes will strike it rich with a big payday, so it’s important to protect the tools that they use to obtain cash and credit when they need it.
In an interview for InStyle, the 90's rapper-turned-daytime-talk-show host talked about first coming into money:
"I honestly didn't think about saving my money until I was in the [music] business. I’m the kind of person who, if I have money, I want to use it to treat the people in my life. So I didn’t even have a legitimate, for-real bank account until I was 18 and got signed."
Eve’s modest upbringing was like many others in poor and low-income American communities where banking was not something most people had access to for various reasons.
In a new IWF policy focus Nicki Neily explains what it means to be "unbanked" as well as "underbanked" and the means they employ to secure cash when needed:
According to a 2015 report by the Federal Deposit Insurance Corporation (FDIC), 7 percent of households in America—9 million—were unbanked, while 19.9 percent—24 million—were “underbanked,” possessing only a checking or savings account, but nothing more sophisticated. And unfortunately, in today’s increasingly digital economy, cash is no longer king—it’s credit. This means that consumers who don’t have access to tools like credit or debit cards face obstacles in trying to purchase everyday essentials like food or medicine.
What happens to these Americans when unanticipated expenses arise is a concern? That emergency expense – which could be anything from a plane ticket to visit a sick relative to an insurance deductible after a car accident – can be a devastating obstacle to a cash-based individual.
The market has developed some options for these individuals including payday loans and loans that use property as collateral. While some denigrate these options, they are a lifeline to the unbanked and one that regulators should not be so quick to target.
As Neilly writes:
If friends and family aren’t willing or able to help, then options are limited… and costly. While the media and regulators tend to focus on the obvious costs and downsides of some of the services that have emerged to service riskier populations, they overlook the benefits of giving people greater ability to participate in the economy and avoiding potentially worse options.
While well-intentioned actors—including nonprofits and government agencies—may call for greater regulation of this sector, it is inevitable that mandating the provision of low- or nocost services to these consumers will result in fewer options for all financial customers in the future, as financial institutions scramble to spread risk to other parts of their portfolios and to make up losses elsewhere.
It’s unrealistic to expect every person in the United States to get a bank account or start investing in the stock market. They may never get one and that should be their choice.
For Americans like Eve, they should at least have access to the services that meet their needs. Gutting these financial services (as has been proposed at the federal and state levels) only hurts the communities that depend on them.
Learn more about the unbanked here: “Policy Focus: Financial Services for the Unbanked.”