While coronavirus and COVID-19 have certainly made our lives inconvenient, having to deal with social distancing is the least most of us should worry about. The economic upheaval caused by this virus continues playing out in a horrific, slow-motion fashion, and nobody knows quite yet just how bad things will get. So far though, new jobless claims are in the millions with each passing week and millions of Americans are facing pay cuts and furloughs. When will the economy begin to turn around? At this point, nobody knows.
Yet, some of the most dire consequences of the pandemic continue hurting those least equipped to handle them. A recent report from the Wall Street Journal concluded that nearly one third of renters didn’t pay their rent payment for April, and the vast majority of Americans don’t have enough cash to cover an emergency bill, yet alone outlast the coronavirus crisis.
With all this in mind, now may be the best time ever to improve banking access and options for all Americans, but especially those who are vulnerable to overpaying for services. With so much else going wrong with American finances, a boost in banking assistance could be a solid first step to help turn the situation around.
The “Unbanked” Face Major Challenges
According to recent statistics, approximately 25% of U.S. households are currently considered unbanked or underbanked.
This typically means they don’t have a traditional bank account like a checking or savings account, or that they do have a traditional account but they still use non-traditional banking services like payday loans to stay up-to-date with their bills.
For things like the stimulus check, this could mean resorting to check cashing services which charge fees just to access their own money.
While it’s hard to understand why someone would opt out of traditional banking in favor of more expensive options, it’s important to know that the rules are stacked against consumers who live paycheck-to-paycheck.
As financial advisor Laura Davis points out, one of the biggest challenges that might seem obvious is a simple lack of enough money to have a traditional bank account. For example, consumers might need a minimum amount to open an account, and they often face a monthly account management fee if they don’t maintain a specific balance in their account throughout the month.
“Also, people without much money may be intimidated by the traditional process to open an account,” she says. For example, someone without banking experience may initially feel uncomfortable walking into a bank, signing an application, and answering personal questions.
According to Dan Carroll, co-founder and Chief Strategy Officer of Wealthfront, the traditional banking model is also mostly “broken” based on the simple fact that banks rely on a network of physical bank branches that…