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Strategy Brief
Banking the Unbanked
Helping Low-Income Families
Build Financial Assets
By Pamela Friedman
Introduction
The passage of welfare reform in 1996 has swelled the ranks of the low-income
workforce. While many have successfully made the transition to employment,
the road to self-sufficiency is still very challenging.
Assets are critical to enabling poor and low-income families to build the personal
and financial resources they need to achieve and maintain self-sufficiency.
Although many low-income families strive to save, the lack of asset accumulation
among the working poor is an issue of growing national concern among
policymakers, researchers, educators, and advocates for the low-income.
Assets can help insure low-income families against the risk of major life events,
such as divorce, unemployment, retirement, illness, and death or accidents
that can cause significant financial hardship. They also enable individuals and
families to obtain education and training, purchase a home, and plan for their
children's future. In this way, assets help families to not only get ahead, but to
plan for themselves and pass on opportunities to future generations.
Research indicates that significantly more families live in asset poverty than
income poverty. Fisher and Weber found the 1998 asset poverty rate in some
communities was four times that of the income poverty rate.1 Hogarth and
Anguelov found that 86 percent of poor and low-income households had some
financial assets; however among households at the poverty level, the median
value of those assets was only $300.2
1
Monica G. Fisher and Bruce A. Weber, Does Economic Vulnerability Depend on
Place of Residence? Asset Poverty Across the Rural-Urban Continuum, Working
Paper No. 04-01, (Columbia, MO: Rural Poverty Research Center, March 2004). The
Economic Success for authors define asset poverty as insufficient resources to sustain household members
Families & Communities at a basic level during times of economic disruption or to invest in their future.
2
Jeanne M. Hogarth and Chris E. Anguelov, "How Much Can the Poor Save?"
Consumer Interests Annual, Vol 49 (Columbia, MO: American Council of Consumer
September 2005 Interests, 2003). 1
The Finance Project
residents such as money orders, phone cards,
The Unbanked the ability to wire funds, and bill payment. The
One of the major causes of asset poverty is a lack costs and fees associated with maintaining
of knowledge about and access to traditional accounts may discourage low-income users.
banking institutions. Compared to higher income Although many banks do offer accounts geared
peers, low-income workers often lack relevant to low-income customers, they are likely to
information about accessing mainstream banking include hidden costs such as high minimum
and related opportunities, which impedes their balance requirements and fees when
ability to build financial assets. When low-income customers cannot fulfill minimum balance
families turn to alternative financial institutions, they requirements.6
face higher costs for service. The high cost of
accessing financial services takes a large bite out · Incentives and opportunities for low-income
of their already limited cash resources, making it families to connect to mainstream financial
even more difficult to build assets. services are limited. Some employers do not
offer payroll deduction and direct deposit. Also,
Individuals lacking access to traditional banks, and low-income workers may lack steady pay from
who conduct their daily financial transactions by one employer, eliminating opportunities for
using alternatives to banks, are known as the direct deposit of their paychecks.
unbanked or underbanked.3 These individuals may
have been bank customers in the past, hold bank In addition, cultural issues related to banking
accounts but do not take full advantage of the influence the use of traditional institutions. Many
banking system, or rely solely on alternative low-income earners do not trust banks to provide
financial service providers. Nearly 10 million accurate and relevant information, and do not
households, including 22 percent of low-income appreciate the formality of traditional banking
families earning less than $25,000 a year, lack relationships.7 Barr 8 and others attribute the
bank accounts.4 Research indicates that among distrust of traditional banks among low-income
low-to-moderate income households, the workers to reasons such as the desire to hide
unbanked tend to be minority, less educated, more assets from creditors or avoid child support
likely to be unemployed, renters, and those with enforcement authorities, the fact that many of the
young children.5 unbanked may be undocumented immigrants, and
the belief that evidence of asset accumulation may
Some of the many reasons given for the lack of negatively impact eligibility for Temporary
connection to mainstream financial institutions Assistance for Needy Families (TANF) and other
among the low-income include: public assistance.
· A lack of appreciation of the costs, benefits,
and risks of using alternative versus Consequences
mainstream banking services. When low-income families turn to alternative
financial institutions, they face higher costs for
· Traditional banking services are often not service. The unbanked rely on an array of alterative
tailored to the needs of low-income families financial institutions to meet their banking needs,
and do not offer the services most needed by including check cashing stores, payday lenders,
3
Although the term unbanked is used in this brief, the strategies discussed are also applicable to underbanked
populations.
4
Michael S. Barr, Banking the Poor, (Washington, D.C.: Brookings Institution, July 2003).
5
Ibid.
6
Todd Vermilyea and James A. Wilcox, Who is Unbanked, and Why: Results from a Large New Survey of
Low-and Moderate Income Adults, (Chicago, IL: Federal Reserve Bank of Chicago, 2002).
7
Woodstock Institute, Community-Bank Partnerships Creating Opportunities for the Unbanked, Reinvestment
Alert No. 15 (Chicago, IL: June 2000).
8
Barr.
2
Economic Success Clearinghouse
title lenders, rent-to-own stores, and tax preparers.
In many cases, these providers offer a number of
Strategies for Encouraging
benefits not associated with mainstream banking. Asset Development
They:
and Savings
· Serve as a one-stop source for cash, credit, States, private industry, human service providers,
and short-term loans; and advocates have a variety of options to
· Assume the risk of bounced checks and encourage low-income consumers to use
defaults; and traditional banking as a means to save. This brief
· Provide more personalized service. highlights three strategies designed to attract
currently unbanked families to mainstream savings
However, these benefits come at a price that and asset development opportunities:
impedes savings higher fees and rates of
interest. Furthermore, personal items used as 1. Educate low-income consumers about the
collateral to obtain credit may be lost if the loan is advantages of traditional banking. Financial
not repaid in full (See "Types of Alternative Service literacy programs can help the unbanked
Providers and Services Provided, below). acquire the skills necessary to manage
ongoing banking activities.
Types of Alternative Service Providers and Services Provided
Provider Services Cost or Risk to Customer
Check Cashing Stores Immediate access to cash and Typically charge a 2-3% fee to
bill payment, money orders, cash payroll or government
money transmission, municipal checks; up to 15% for personal
services, and phone cards. checks.
Payday Lenders Short-term (usually two weeks) 15-17% fee for a two-week loan;
cash advance on paychecks. additional fee if loan is rolled over.
Title Lenders Short term loans (usually one 15-20% monthly fee; defaults may
month), with automobile or other result in loss of asset.
household assets as collateral.
Rent-to-Own Stores Purchases of big ticket items are Final purchase price can be 2-3
paid for in monthly installments. times retail cost. Customers forgo
equity until final payment.
Payments over time are not
refunded if item is returned.
Tax Preparers Refund Anticipation Loans (RAL) Refunds are received only 1-2
based on EITC or other tax weeks earlier than if filed
refunds provide filers with cash electronically with the IRS; filers
earlier than with direct deposit. pay interest rates of between 70-
700% if calculated annually. These
fees are generally deducted
directly from customers' refund
checks.
3
The Finance Project
2. Encourage banks to provide services that assets to build wealth -- is receiving increasing
are affordable to and routinely used by low- attention as an important skill for all families,
income consumers. Banks may attract more including the low-income and disadvantaged.9
low-income consumers by expanding hours Financial literacy can provide the knowledge
of operation and offering services such as bill necessary to manage household budgets, initiate
payment, money orders, prepaid phone cards, savings plans, manage debt, and make strategic
and cash wiring services in one convenient investment decisions. With these basic financial
location. planning skills it is easier to meet ongoing
obligations as well as to maximize longer-term
3. Incorporate banking into other support financial security. Financial literacy training can
programs. Federal programs designed to also inform consumers about bank services
support low-income working families such as designed to build personal credit and help them
Electronic Benefits Transfer (EBT) and decide which options best meet their specific
Individual Development Accounts (IDAs) needs.
provide financial institutions with opportunities
to target services to the unbanked. Financial literacy training is provided by a variety
Incorporating banking into support programs of national and local entities including community-
provides opportunities to connect low-income based organizations, community credit unions,
consumers to traditional banking institutions. and the Cooperative Extension Service. National
organizations such as Fannie Mae and the
Strategy # 1: Educate low-income Jump$tart Coalition work with local community
partners to provide training. Many schools also
consumers about the advantages of
offer introductory courses on savings, checking,
traditional banking and credit to teens. In addition, IDA programs often
Financial literacy -- understanding money, require that participants attend classes relevant
banking, credit, and how best to use financial to their savings goals and objectives. Many public
Minnesota Trains Front-Line Workers on Financial Literacy
Over the past four years, the Minnesota Department of Employment and Economic Development
(DEED) has completed a series of "train the trainer" sessions on financial literacy for state
employment counselors and financial workers, and staff of community- based agencies and lending
institutions that serve low-income workers. Over 500 front line staff who work one-on-one with
low-income clients have completed training on Money Smart, a financial literacy curriculum
developed by the Federal Deposit Insurance Corporation. In recognition of changing workforce
demographics and an increase in the number of new immigrants, DEED developed Financial
Literacy: Learning the Language of Money, a guide designed to help counselors assist clients as
they navigate the U.S. banking system The goal of the guidebook is to improve cross-cultural
communication between frontline workers and immigrant clientele. It examines the history and
cultural nuances of financial literacy among Hmong, Latino, and Somali populations. After reviewing
financial literacy in the country of origin, it examines how these systems shape clients' values and
perspective of the American financial system. For additional information about Money Smart or
the projects Minnesota is working on, contact Susan Tulashie at 651.297.2176 or e-mail her at
susan.tulashie@state.mn.us.
9
Recognition of the need to promote financial literacy prompted the creation of a federal Financial Literacy and
Education Commission in 2004 to help Americans tackle such issues as identity theft, consumer disputes,
accurate reporting of financial records, and access to consumer credit information. The commission is currently
seeking input on the development of a national strategy to promote basic financial literacy and education for all
U.S. citizens.
10
Dory Rand, Financial Education and Asset Building Programs for Welfare Recipients and Low-Income
Workers: The Illinois Experience, (Washington, D.C.: Brookings Institution, 2004).
4
Economic Success Clearinghouse
and private organizations also include financial a trainer for their financial literacy program, and
literacy programs or counseling as part of their was therefore able to offer employees access
employee benefits package as a way to teach to training during working hours with no cut in
consumers about the value of having a relationship pay and no additional cost to the company.
with a financial institution.
· Financial literacy programs can benefit both
Research has shown that financial literacy can employers and employees. Perdue employees
help connect low-income families to mainstream who participate in the company's financial
financial institutions and boost their savings. For literacy program are encouraged to open
instance, a recent evaluation of a financial Individual Development Accounts as a means
education and savings program for low-income to save for a home purchase. With support
individuals in Illinois found that program graduates from Delaware's Live Near Your Work initiative,
reported increased usage of mainstream financial they are able to purchase homes near Perdue
institutions as well as better budget and expense facilities. Perdue uses this benefit as a tool to
management. Over 25 percent of graduates who attract and retain workers.
did not previously have bank accounts opened a
checking or savings account for the first time. · The cultural and language needs of program
Seventy-four percent increased their savings and participants may influence the success of
76 percent better managed credit card debt. financial literacy training. When designing or
Others reported a positive change in the way they choosing a financial literacy curriculum, it is
paid bills and managed household budgets.10 important to take into account the needs of the
community residents being served.
Considerations Community partners can be a valuable
· Working in partnership with community resource in reaching non-English-speaking
organizations and public agencies, employers consumers and making materials culturally
may be able to offer financial literacy benefits relevant. Community-based organizations can
at no additional cost. Perdue Farms act as a bridge between the unbanked and
successfully raised funds from Fannie Mae traditional financial institutions by framing
and Citizens Bank to cover the costs of hiring relevant information in a context more familiar
Perdue Program Offers Bilingual Financial Literacy
and Homeownership Program to Employees
Last year, Perdue Farms partnered with the Delaware State Housing Authority, the National Council
on Agricultural Life and Labor Research Fund (NCALL Research), Fannie Mae Delaware, and
Citizens Bank to develop and pilot Finanzas, a bilingual financial literacy program. The program
serves Perdue employees at its Georgetown, DE, facility, and operates in conjunction with the
state's Live Near Your Work initiative (LNYW), an employer-driven partnership to provide financial
assistance to help employees purchase homes near their place of employment. Finanzas delivers
comprehensive financial literacy training to employees at the workplace during work hours, with no
loss in pay. In addition, a certified housing counselor from NCALL offers related classes in English
and Spanish. Participants in the six-week course are encouraged to open bank accounts and
establish direct deposit for paychecks. During its first year, the program offered four series of
classes, limited to 10 participants each, allowing the trainer to address the specific needs of each
participant. Of the 40 pilot participants, 31 completed the program. Fifty-four percent of those
opened savings or checking accounts. Two have become homeowners and three are in the
process of purchasing a home. Another 10 participants are currently receiving homeownership
counseling. As a result of the program's success, Perdue now offers the program permanently,
and plans to expand it to a second site within the state. NCALL is currently marketing the course
to other businesses in the area. Citizens Bank and Fannie Mae provided funding for the program.
For additional information, contact Adriana Mason at 302.855.5541 or adriana.mason@perdue.com.
5
The Finance Project
Latino Community Credit Union Successfully Attracts Clients
with Banking, Financial Literacy, and Other Services
The Latino Community Credit Union (LCCU) is a community-based and member-owned nonprofit
financial institution based in North Carolina. It is the first fully bilingual financial institution in the
state and the fastest growing credit union in the nation. LCCU plays a vital role in the area's Latino
community, where nearly 75 percent of residents do not have bank accounts. Among the services
offered are savings and checking accounts, certificates of deposit, low-cost money wire services
to Latin America, and direct deposit. In addition, financial literacy classes are offered twice a month
at all LCCU branches and local community sites. With support from the Educational Endowment
for Financial Education, LCCU developed a bilingual curriculum that can be used by other
organizations and English as a Second Language (ESL) teachers to teach basic money
management and banking skills to new immigrants. LCCU uses creative outreach efforts to attract
new members, including rewarding current members for encouraging others to join the credit
union with prepaid phone cards and opportunities to participate in raffles. For additional information,
contact John Herrera, 919.417.3326, or john@self-help.org.
to constituents. They can also work with services, mergers, and acquisitions. Thus,
banks to tailor services to the needs of local banks may be willing to support financial
residents. Banks and other financial literacy training in partnership with community-
institutions may experience greater success based organizations as one way to meet their
reaching potential customers if they partner with CRA service requirements.
local organizations that are trusted in the
community. Strategy # 2: Encourage banks to
provide services that are affordable to
· The Community Reinvestment Act (CRA) can
provide an incentive for banks to support and routinely used by low-income
financial literacy training in low-income and consumers.
minority neighborhoods. CRA mandates Many of the unbanked depend on alternative
periodic reviews of depository institutions' financial services providers because they provide
lending, investment, and service activities in in one location immediate access to cash and
the communities where they provide services. services such as bill payment, money orders,
Federal regulators take banks' performance on prepaid phone cards, and cash wiring. Extended
these evaluations into account when hours of operation and more personal service also
considering their applications for expansion of make these businesses attractive to unbanked
Union Bank of California's Cash and Save Program
The Union Bank of California (UBOC) Cash and Save Program is a hybrid check-cashing service
and network of bank branches in Southern California. It is a low-cost alternative to traditional banking
outlets, offering customers check cashing at below-market prices. Cash and Save offers a complete
range of check cashing services, including payroll and government check cashing, as well as
traditional banking and full service banking products. Cash and Save does not require customers
to have an account with UBOC to cash checks, but it is designed to transition repeat check-
cashing customers to mainstream banking. Savings accounts can be opened with as little as $10.
Services include six money orders a month, electronic transfer accounts, and basic checking.
Branches are open daily and customers also have access to financial literacy training and
homeownership counseling. Since its inception, 45 percent of Cash and Save customers have
made the transition from check cashing to traditional banking. For additional information, contact
Robyn Buckner at 213.236.7808 or robyn.buckner@uboc.com.
6
Economic Success Clearinghouse
Bank of America's CashPay Visa Card
The Bank of America's CashPay Visa card is a prepaid payment card that enables employers and
employees to use prepayment technology in place of paper checks. The program provides those
who may not have traditional banking relationships with immediate access to their pay through the
use of a Visa card, eliminating the need to use check-cashing centers or to carry large amounts of
cash. With the CashPay program, employees' paychecks are deposited to their individual accounts
established by the Bank of America. The cardholder can make purchases anywhere Visa is accepted
and withdraw cash from Bank of America ATMs, with up to four withdrawals a month free of charge.
They receive monthly statements and can obtain account information by calling a toll-free bank
number, at ATMs, or via the Internet. Bank consumer security protection policies apply for lost or
stolen cards. The program also offers additional options such as the transfer of funds from checking
to savings, bill payment, and bilingual program support.
Employers benefit from the reduced payroll costs associated with distributing paper
paychecks, bank processing fees, and costs for lost or stolen checks. Employees benefit from
access to Visa merchant locations and easy cash withdrawal. Because funds are immediately
available, employees no longer need to wait for their paychecks to clear. For additional information
contact John Gruce at 704-388-5532 or John.Gruce@bankofamerica.com.
workers. Although some banks offer several of community because they see a potential for
the same services, their availability may not be profit.11
well publicized, and hours are often more limited.
To reach a wider audience, banks can collaborate Considerations
with trusted community partners to market the · Current Internet technology provides low-cost
availability of bank services to potential customers opportunities to introduce the unbanked to
and orient new customers. basic banking services. Use of the Internet has
become valued and widespread even among
The unbanked represent a large and potentially those who do not own personal computers.
profitable market for mainstream banks. Banks Providing those who are new to banking with
that develop and market specific programs to financial information and account access via
targeted groups, including low-income workers, the Internet presents opportunities to engage
are beginning to see profits. Although national data hesitant families in a new way that can be
are not currently available, many individual banks attractive to them.
have indicated positive outcomes. For example,
some banks have aggressively marketed products · Partnerships among financial service
to small business owners in the Hispanic institutions, such as the one created by Bethex
CommunityLink Introduces Customers to Banking
Through Internet Technology
FleetBoston Financial Corporation launched CommunityLink in 1999. The program operated through
early 2004, but was discontinued when Fleet merged with Bank of America. The program provided
several services to participants: Internet access, computer training, online bank accounts, and
electronic bill payment services for one year. The online bank accounts did not include check
writing, but did offer unlimited cash access, with no minimum balance or monthly fees. Fleet
partnered with 10 community-based organizations to deliver specialized computer training to
familiarize participants with Internet use and provide information about online banking services.
The bank also sponsored the development of a local portal in Boston, which provided local information
and news in addition to Fleet banking services. For more information on CommunityLink contact
Sean Stanton at 617.346.0787, or sean_p_stanton@fleet.com.
11
Telephone conversation with Tracey Mills, American Bankers Association, August 4, 2004.
7
The Finance Project
and RiteCheck, to reach the unbanked should flexible than conventional banks, and they are
be evaluated carefully according to their costs located in communities where their members
and benefits. For example, RiteCheck covered live. As cooperative financial institutions owned
the cost of installing POB terminals in each of and operated by their members, credit unions
their outlets. In turn, they were able to market are sometimes viewed as a middle ground
and increase usage of their ancillary services between traditional banks and alternative
to credit union members. However, each service providers.
partner must insure that appropriate state
regulatory, operational, and legal issues are Strategy # 3: Incorporate banking into
resolved prior to program implementation.
other support programs.
The Personal Responsibility and Work Opportunity
· Attracting employers to direct deposit
Reconciliation Act of 1996 (PRWORA), otherwise
programs is a key to helping unbanked low-
known as the welfare reform bill, influenced the
wage workers become more familiar with
expansion of two programs, Electronic Benefits
traditional banking services. Employers may
Transfer (EBT) and Individual Development
be more inclined to participate in direct deposit
Accounts (IDAs). Both programs provide an
programs if they understand how doing so can
excellent opportunity to introduce low-income
be cost-effective for them as well as beneficial
families to mainstream banking, because each
for their employees.
requires participants to maintain bank accounts.
· Credit unions can play an important role in
EBT is a special application of electronic funds
giving the unbanked an introduction to banking.
transfer (EFT) technology, which allows money to
Their services are often less costly and more
be taken from one account and transferred to
Innovative Partnership Offers Credit Union Members Access to a Variety of
Banking Programs
In 2000, Bethex Federal Credit Union of New York City joined forces with RiteCheck Financial
Service Centers to provide a complete range of products and services that compete with alternative
service providers like payday lenders. Because the partnership merged the business functions of
two distinct entities, each needed to obtain regulatory approval before implementation.
The partnership helps both businesses offer a wide range of transaction, deposit, and
credit services that would otherwise be unavailable to their customers. The credit union is an
independent savings and loan cooperative, offering its 11,000 individual and business members,
60 percent of whom are low-income, a wide variety of services. Members can open savings
accounts for themselves or their children, as well as personal and business checking accounts,
IDAs, and individual retirement accounts. Additional services include ATM cards, direct deposit,
money orders, travelers' checks, savings bonds, wire transfers, share certificates, credit and budget
counseling, insurance, and a variety of loan opportunities. Another benefit, check cashier deposits,
encourages savings by allowing credit union members to use RiteCheck Point of Banking (POB)
machines to make deposits free of charge or to cash checks at lower fees if at least 20 percent of
the check is deposited. In addition, members can apply for a Visa card and home mortgages, as
well as overdraft protection to cover checks for up to $300. RiteCheck's services include check
cashing, utility bill payment, telephone calling cards, money wiring, postage stamps and stamped
envelopes, and coin and currency sales. RiteCheck also offers extended banking hours.
The partnership benefits both businesses. Credit union members are able to make deposits
at RiteCheck stores and receive free, immediate checking services on Bethex checks, resulting in
increased business for RiteCheck. Bethex offers members access to POB terminals, facilitating
business interactions, and has the opportunity to market its products to a wider audience. For
additional information, contact Joy Cousmeiner at 718.299.3062 or joy@bethexfcu.org.
8
Economic Success Clearinghouse
another. PRWORA required states to deliver food grant funds. IDAs are dedicated savings accounts
stamps through EBT by October 2002. targeted specifically to low-income working
Concurrently, many states also chose to develop families. In addition to providing an incentive to
systems to deliver cash benefits via EBT.12 Under save, they facilitate ongoing interaction with the
these programs, funds are directly deposited into financial institution that holds the account. IDA
recipients' bank accounts and can be accessed accounts are held in the name of the participant,
at ATM machines and POS terminals as well as who makes regular deposits, which are then
other locations, such as grocery stores, through matched from public, non-profit and/or private
the use of a card similar to a bank debit card. EBT sources. IDAs generally provide matches of
is an effective means to encourage traditional between one and three dollars for every dollar a
banking among the unbanked because it participant contributes to his or her account. The
automatically creates a bank account and requires match is usually managed by community-based
recipients to conduct transactions through organizations. The use of IDA savings is generally
mainstream banking institutions and processes. restricted to post-secondary education, business
capitalization, and home ownership. IDA programs
Although a handful of agencies operated IDA often set annual caps on the amount of matching
programs prior to the enactment of PRWORA, the funds account holders can receive, as well as
legislation also brought the concept of IDAs to the establish minimum savings periods and goals for
forefront by authorizing states to create participants to be able to access their IDA funds.
community-based IDA programs with TANF block
Widespread Use of EBT in California Provides
Opportunities for Banking the Unbanked
As of April 2005, all of California's 58 counties distribute food stamp benefits using EBT. Fifty-four
of the counties distribute TANF benefits by EBT, including 12 counties that issue General Assistance
Benefits.1 Since December 2001, California has mandated that those counties offering payroll
direct deposit to their county employees must also offer a direct deposit option to cash benefit
recipients.
J.P. Morgan Electronic Financial Services maintains the EBT accounts and recipients can
access them via participating ATMs and POS delivery retailers. J.P. Morgan pays the interchange
fees for each ATM withdrawal as well as the standard interchange for denied transactions. Of the
80 participating ATM owners, about 23 percent make their ATM surcharge-free. The state has
worked to educate cardholders about how to access their benefits efficiently and an increasing
percentage of withdrawals are made at free ATMs. As of October 2004, 59 percent of cash benefits
are withdrawn through ATMs and 48 percent are redeemed free of charge. This compares to a
national average of 65 percent of all ATM users who do not pay monthly fees.2 County welfare
offices routinely receive information about cardholders who spend in excess of $10 a month on
ATM fees so that they can make additional training or troubleshooting available.
Since an EBT account is not a bank account, many banks are exploring opportunities to
market low-cost accounts to EBT recipients. Currently, Union Bank of California and Washington
Mutual offer such accounts with no minimum deposit and low or no fees. For additional information,
contact the California Department of Social Services Program and Integrity Branch at 916.654.1874.
1
General Assistance is a cash assistance program designed to meet the short or ongoing needs of low-
income persons ineligible for or awaiting approval for TANF or SSI.
2
American Bankers Association, Amount Consumers Spend on ATM Fees Per Month, National Telephone
Survey, (Washington, D.C.: March 21-23, 2003).
12
33 of the 41 states with statewide EBT systems deliver TANF benefits electronically. General Assistance
and Supplemental Security Income are also delivered via EBT, in 13 and 9 states respectively.
9
The Finance Project
Individual Development Account Collaborative
The Individual Development Account Collaborative of Louisiana (IDACL) facilitates access to
mainstream banking for its members through the use of traditional banking practices that support
IDAs. The collaborative consists of education and financial institutions, community and faith-based
organizations, workforce organizations, other social service providers, and public agencies working
to help low-income families create wealth.
The collaborative provides participants access to matched savings accounts and financial
literacy training. Once approved, participants can open a matched savings account, which is provided
free of charge by one of the participating banks. For every dollar saved, the participant receives a
match of up to $4, depending on his or her chosen goal and income eligibility. Participants attend
financial literacy classes in expense tracking, budgeting, and credit building/repair, followed by
goal-specific training to prepare them for acquisition of their asset. Matching funds are kept in a
separate account until participants meet predetermined savings goals and other program
requirements. Early withdrawal of these funds requires approval and a signature from the program
manager.
Staff from a number of the eight participating banks regularly meet with program participants
to provide budget management and other one-on-one assistance, as well as to introduce them to
other savings programs. Anecdotal evidence suggests that bank representatives continue to
maintain business relationships and work with the more than 600 participants who successfully
completed the program. For additional information, contact Donna Darensbor at 504.865.5207 or
donnad@tulane.edu.
Most programs also provide financial education immediate and long-range needs of low-
and asset-specific training to participants. income earners. In addition to addressing
savings objectives such as small business
Considerations capitalization and homeownership, needed
· As with financial literacy training, the products and services may include credit and
Community Reinvestment Act (CRA) also debit counseling, children's savings accounts,
provides an incentive for banks to increase their and retirement savings vehicles.
connection to the unbanked through IDAs.
Under CRA, banks may receive credit for such
activities as administering IDA accounts, Conclusion
providing or funding related financial literacy The ability to save and accumulate assets has
training, offering no-fee savings accounts, and many positive outcomes for families, and is
extending loans to IDA participants to help them important to family economic security and
purchase an asset upon program completion. success. While the majority of middle- and higher-
income families are familiar with and routinely use
· Program developers can use information and mainstream banking to build credit and assets,
experience from the EBT and IDA programs many low-income earners do not. This results in
to develop and market financial products low-income families paying higher costs for
tailored to the needs of low-income customers, services and foregoing opportunities to build
many of whom were previously unbanked. assets.
Tracking ATM usage by EBT participants can
help banks better determine local community Connections to mainstream banking institutions
need for access to automated banking. can help low-income workers and their families
Assessment of financial education needs build the financial assets necessary for long-term
expressed by participants in IDA programs can self-sufficiency. Key strategies that public and
help program developers design financial private entities can use to connect the unbanked
literacy programs that address the specific to mainstream banking institutions are to provide
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Economic Success Clearinghouse
education about the advantages of mainstream National Telephone Survey. Washington, D.C.:
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Economic Success Clearinghouse
Contact Information for Additional
Resources:
Annie E. Casey Foundation
410-547-6600
http://www.aecf.org/
Center for Social Development at Washington
University
314-935-7433
http://gwbweb.wustl.edu/csd/index.htm
Center on Budget and Policy Priorities
202-408-1080
http://www.cbpp.org
Corporation for Enterprise Development
202-408-9788
http://www.cfed.org
The Finance Project
202-587-1000
http://www.financeproject.org/
Housing Assistance Council
202-842-8600
http://www.ruralhome.org/index.htm
New America Foundation
202-986-2700
http://www.newamerica.net
Woodstock Institute
312-427-8070
http://www.woodstockinst.org/
Pamela Friedman is a Senior Program Associate at The Finance Project. The author would like to
thank the many program developers, policy makers and community leaders who shared their
expertise for this strategy brief. In addition, thanks to Carol Cohen and Sharon Deich, who pro-
vided oversight and review of this paper.
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About The Finance Project
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families and communities
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communities. Through a broad array of products, tools and services, we help leaders make smart
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