“Getting by” Without a Bank
The Atlantic just published a great article on how difficult it is to handle money issues when you are poor. When You’re Poor, Money Is Expensive raises important questions about the role of traditional banks in our country and how complicated “getting by” can be.
My first thought when reading this article was the impact payday lending has on people’s lives. The subjects of this piece started with a loan of $450 and ended up owing more than $1700 with interest and fees. In 2010, Montana voters passed I-164, setting strict caps on payday lending which virtually eliminated this type of lending in our state. The National Conference of State Legislatures charts how other states handle the issue.
As I continued to read, I thought about how our society judges those who live in poverty and struggle to pay bills. People wonder why it is so hard and how can people fall so far behind. It is important to know that one in four Montanans are either unbanked (meaning they do not have a checking or savings account) or underbanked (meaning they may have a bank account but rely primarily on alternative – and costly – financial services, like payday loans, check cashing services, and nonbank money orders).
The reasons why individuals do not use traditional bank services are varied. In rural places, especially on reservations, there are few, if any, banking institutions. Traditional banks often don’t fit the needs of low income individuals. People living in poverty need money orders, phone cards, wire transfers, and other services that payday lenders provide. Some do not trust banks, understand the rules and formalities, or are afraid of creditors or the government seizing assets. In addition, the inconsistency of paychecks can discourage employers from offering direct deposit. Then people must rely on paper checks to get paid, but to cash them, these individuals often are charged cashing fees. Adding the complication, without a checking account, cash must be delivered in person to pay bills – wasting valuable time and money.
The article says that unbanked families spend 10 percent of their money replacing traditional banking services. Can you imagine using 10 percent of your income like that? No wonder families are stuck in poverty – each paycheck is gone as soon as it is received.
As I continue to think about this piece and how too many families are just one emergency away from ending up in these situations, I am glad I work at the Montana Budget and Policy Center. We will continue to work on issues like Medicaid Expansion, earned income tax credit, unemployment insurance, and other policies to help low-income families make ends meet. We want to give all families the opportunity to move ahead and plan for the future.