Wednesday, August 19, 2009

Banks in Poor Neighborhoods

An interesting story from yesterday's New York Times:

City’s Poor Still Distrust Banks

In 1986, when the Lower East Side had just one bank in a 100-square-block area, the high numbers of residents without bank accounts alarmed the city but did not surprise anyone.

In the years since, the number of bank branches has skyrocketed, with the big names compelled to open in underserved areas. Community credit unions have sprung up from Washington Heights to Bedford-Stuyvesant. Outreach workers have taken to the streets to draw the “unbanked” — many of them the city’s poorest, living check to check — into the system and away from the high-fee world of check-cashing and money orders.

But none of it has worked. In Manhattan, long the world’s banking capital, 12 percent of households still do not have a bank account, compared with the national average, 8 percent, according to recently released data by the Pew Charitable Trusts.

You'd think the reason might often be that banks charge high fees for low balances, but many of the people quoted in the article aren't even thinking about that: they hardly ever have any spare money. If they do, they send it to relatives in another country. And sometimes they just don't trust banks not to rip them off. So instead they go to check-cashers who really do rip them off!


Unknown said...

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Chad @ Sentient Money said...

The 8% national average even amazes me. This is just another example of a lack of education and the inablility for a large portion of the population to help themselves.

michelle said...

This is sobering news. I moved from the northeast to the deep south, and live in a neighborhood that is bordered by poorer neighborhoods. There are so many check cashing stores in this area that I've come to view them as a marker of poverty, and an exploitative one at that. It is not unusual to go to the dollar store and see people paying with balled-up wads of cash. Especially since much of the crime around here is centered in low-income neighborhoods, I wonder how much of that is due to the knowledge that people are keeping any assets in cash rather than in the bank.

MEG said...

As a landlord I interact with a lot of people who don't have (or don't use) bank accounts. My tenants pay me in cash or with money orders almost without exception. Most of them grew up that way and their system works and they don't really care about having a bank account.

I think the origin of it - the dividing line - is being paid in cash or checks as opposed to direct deposit. When companies mandate direct deposit, people get checking accounts. Otherwise if you are living paycheck to paycheck and you're handed cash or a check on Friday, you're going to immediately pay your landlord, the cable company, and then your other creditors in order of importance. No real need to go to the bank, wait in line, deposit it, just to turn around and write checks on the account for as close to the entire amount of the money as possible.

I think it's actually a good thing some of these folks don't try to use banks. After depositing their pay they are very likely to quickly overdraw and run up hundreds in fees because they try to pay all their bills without knowing how to effectively balance a checkbook. If you're dealing in cash you might pay a few bucks to cash a check or get a money order, but I guarantee those people come out ahead by not having OD fees.

Chad @ Sentient Money said...

@ Meg

Those overdraft fees are probably less than the fees the check cashing places charge. Plus, they might handle it properly and not get hit with overdraft fees. They will get hit with fees at the check cashing place every time.

Also, assuming these people are hopeless and could never manage a bank account is rather strong commentary on your opinion of these people.

Unknown said...

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nyfinances said...

Finances and banks in New York are very difficult. Starting up a small business depends on them and on the way market works.

CardMaster said...

There was a recent article in my local paper about a bank in a low income area that recently went under. Judging from their story, they started out as very positive for the community - giving out loans to people that other banks wouldn't and counseling people on finance management. But then they got tied up in some cyber theft and bookkeeping issues ... a somewhat sad story:

Tim Palen said...

I used to work at a bank, and worked there for 5 years as an account opening representative. With this came service issues which included overdraft fees and how they are incurred. It is not just folks in poorer neighborhoods that run into these problems, and end up paying more than they would have if they had just gone to a cash and carry budget.

If someone is able to survive and live a happy life by their definition using a cash and carry budgeting system, then more power to them. You can save a lot of money from check cashing fees if you can run your personal finance within the banks guidelines because once you overstep your charged ridiculously high overdraft fees and 9x out of 10 you will pay more in overdraft fees.

If a person does not take personal responsibility about tracking their personal finances being held within a bank it is only a matter of time before they run into problems. Don't rely on the bank to track your balances, keep a checkbook/check card register and use the banks tools as a double check.

Belmont Thornton said...

Financial institutions should have a sense of responsibility and operate in these areas, which could also give them a decent business, due to lack of account holders in these places..