Financial Exclusion and Banking Participation of America's Working Poor

Abstract

The highly developed financial system of the U.S. continues to exclude and fail millions of American households -- many of whom are disproportionately low-income and are in need of inclusive banking services the most. This paper attempts to better understand who America's unbanked and underbanked are and analyzes the merit of financial integration into a divided mainstream sector. Using nationally representative data on 6,394 adults from the National Financial Well-Being Survey collected in 2016 by the Consumer Financial Protection Bureau, a linear probability model is used to explore the possible drivers of banking participation. The public discourse surrounding banking reform and consumer protection has involved critiquing consumers of "fringe-banking" and scrutinizing alternative providers. However, commercial banks' withdrawal from average consumers -- who are increasingly susceptible to financial shocks -- has perhaps made integral banking products more unattainable for the working poor. Evidenced by the expansion of the alternative financial sector, the millions of vulnerable unbanked and underbanked Americans who must pay more for basic banking services demand policymakers and consumer advocates better understand the causes of financial exclusion before implementing the appropriate interventions. [From Introduction]