Boosting Savings in Troubled TimesTimes

National Conference of State Legislatures

Legislati e S mmitLegislative Summit

July 27, 2010

El Vill fEloy Villafranca

Director, Bank on California

Community Affairs OfficerCommunity Affairs Officer

FDIC

1

Personal saving as a percentage of di bl l idisposable personal income

25

30

10

15

20

0

5

10

-5

0

1933 1940-45 1970-77 1980-84 1992 2000

2

Data from the Bureau of Economic Analysis, an agency of the U.S. Department of Commerce.

H h ld Unb nk d S rHousehold Unbanked SurveyFederal Deposit Insurance Reform Conforming p gAmendments Act of 2005 (“Reform Act”) requires FDIC to conduct ongoing surveys of banks on efforts to serve the unbanked.

Lack of complete and reliable data on this topic led the FDIC to enter into an agreement in 2007 with the Bureau ofFDIC to enter into an agreement in 2007 with the Bureau of the Census to jointly conduct the first national survey of unbanked and underbanked households (“National Household Survey”) as a supplement to the CensusHousehold Survey”) as a supplement to the Census Bureau’s Current Population Survey (CPS).

3

National Proportions of Unbanked d U d b k d H h ldand Underbanked Households

• An estimated 7 7 percent• An estimated 7.7 percentof households, about 9 mm with at least 17 mm adults, are unbanked.

Unbanked7.7%

are unbanked.

• An estimated 17.9 percentof households, about 21 mm with about 43 mm adults are

Underbanked17.9%

with about 43 mm adults, are underbanked.

• Taken together, at least

Banked, but Underbanked

Status Unknown*

4 1%

Banked, but Not

Underbanked70.3%

25.6 percent of U.S. households, close to 30 mm households with about 60

d lt b k d

4.1%70.3%

Notes: Percentages are based on 118.6 million U.S. households. Percentages do not always sum to 100 because of the rounding of household weights to represent the population totals.* These households are banked, but there is not enough information to determine if they are underbanked.

4

mm adults, are unbanked or underbanked.

Characteristics of unbanked h h ldhouseholds

Households more likely to be unbanked than the population as a whole are those:With a black, Hispanic non-black, or American Indian/Alaskan householder; or Where Spanish is the only language spoken at home; orWith a householder that is a foreign-born noncitizen; orThat are family households with an unmarried female or y d dmale family householder; orEarning less than $30,000; orWith a householder holding less than a high school degree;With a householder holding less than a high school degree; orWith a householder under age 45.

5

SYMPTOMSSYMPTOMSUse of alternative service providerspPaying high fees or interest for financial productsMaking questionable decisions with moneyLack of a noticeable budgetLack of “Brick and Mortar” Bank or CU Lack of “Brick and Mortar” Bank or CU branchesLimited financial knowledgegLow or no credit score(s)No credit cards

6

Lack of US or State IDAll purchases and payments in cash or MO

Unbanked householdsby race/ethnicityby race/ethnicity

Percentage of Households

35.0

40.0g

21.719 3

25.0

30.0

19.315.6

9 215.0

20.0

9.2

3.5 3.35.0

10.0 National: 7.7%

7

0.0Black Hispanic American

Indian/AlaskanHawaiian/Pacific

IslanderAsian White

Unbanked householdsby household typeby household type

40 0Percentage of Households

30.0

35.0

40.0

19.720.0

25.0

30.0

14.9

8.510.0

15.0National: 7.7%

3.6

0.0

5.0

M i d C l U i d F l U i d M l N f il

8

Married CoupleFamily

Unmarried FemaleFamily

Unmarried MaleFamily

NonfamilyHousehold

9

Enhancing the Economic W llnWellness

Financial Education (Money Smart Program)g )Free Tax Preparation—VITA sitesIndividual Development Accounts—pIDAsLow-cost Deposit AccountspLow/No-Cost Check Cashing

10

Bringing Consumers into the M i tMainstream

Innovative low-cost productsAffordable Housing optionsAffordable Housing optionsCoaching/AssistanceRecognizing SuccessesRecognizing SuccessesLearning from mistakesSecond chance Acco ntsSecond-chance Accounts

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ISSUES TO CONSIDERREACHING OUT TRUST

TRUST—WHERE ARE THE CONTACT

REACHING OUT--TRUST

TRUST—WHERE ARE THE CONTACT POINTS? Community-based Organizations

F ith B dFaith-BasedEducation-basedEmployment-basedp yFamily-basedEntertainment-based

CULTURE—DIFFERENCES IN CUSTOMS/BELIEFS

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LanguagePerceptions

ISSUES TO CONSIDERREACHING OUT--EDUCATION

FINANCIAL LITERACYFINANCIAL LITERACYLevelAvailability/SourcesC tCostsBenefits/WIIFM

CUSTOM PRODUCTS/SERVICESIncomeUnique needs (Agriculture Ranching)Unique needs (Agriculture, Ranching)Cultural Beliefs

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AN INCLUSIVE ENVIRONMENTREACHING OUT PARTNERSREACHING OUT--PARTNERS

CANNOT BE DONE ALONE!Partners

Community IndividualsCommunity-based OrganizationsF ith b d O i tiFaith-based OrganizationsOther local/state/federal agenciesProfessional/Technical assistanceo ess o a / ec ca ass s a cePrivate BusinessesAdvisory Boards

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RAISE TEXASRAISE TEXAS

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RAISE TEXASRAISE TEXASStarted in 2003 as TX IDA NetworkStarted in 2003 as TX IDA NetworkFDIC originating partnerPromoting and implementing new IDA Promoting and implementing new IDA programs throughout the stateStarted DFW pilot program in 2005Started DFW pilot program in 2005Evolved into TX Asset Building Coalition as IDAs maturedIDAs maturedIn 2007 renamed RAISE TX (Resources, Assets, Investments, Savings and

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, , gEducation)

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What is Bank on lif iCalifornia?

A partnership between a diverse statewide coalition:A partnership between a diverse statewide coalition:

Office of the Governor Financial Institutions & Financial RegulatoryFinancial Institutions & Financial Regulatory Agencies Community OrganizationsBANK ON MBANK ON Mayors

TO:

Raise awareness Boost financial literacyDevelop and market starter accounts

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pHelp people make better financial decisions

Bank on California Cities

2009 Accts

San Francisco 23,434San Francisco 23,434Los Angeles 38,534Oakland 6,545Fresno 31 808Fresno 31,808San Jose 6,394Sacramento 1,353Other 1,996Santa Ana NEW!!

19TOTAL 110,064 !!!!

www.EconomicInclusion.gov

20

A website designed to facilitate access to d l MSA l l dstate and large MSA-level data…

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Unbanked householdsb i d t tby region and state

22

R h h ld b k dReasons households are unbanked37.1

34.1Do not have enough money to need account

25.8

12.2

10.918.0

12.7

12.0

12.4

6.3

Did not need or want account/Do not see value of account

Service charges are too high

Do not write enough checks

Minimum balance requirement is too high

8.3

7.1

6.9

5.2

1.7

6.3

3.8

3 6

Bounced too many checks/had too many overdrafts

Do not trust banks

Could not manage or balance account

There is no bank near work or home

4.5

4.0

3.5

2 0

3.6

9.1

3.7

3.5

There is no bank near work or home

Banks do not feel comfortable or welcoming

Banks have inconvenient hours

Banks do not offer needed services

B k t k t l t l h k

Previously Banked Never-Banked

2.01.1

6.90.4

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0

Banks take too long to clear checks

There are language barriers at banks

Percentage of Unbanked Households

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Note: Percentages based on a total of 4.23 million never-banked households and 3.14 million previously banked households. Previously banked households that did not close their account themselves and/or were in the process of opening an account were not asked why they closed their account and are excluded from this analysis. Percentages sum to more than 100 because respondents were permitted to choose multiple responses.

Alternative financial services used by b k d h h ldunbanked households

About 66 percent of unbanked households haveAbout 66 percent of unbanked households have used an AFS.

54 percent have used non-bank money orders.

38 percent have used non-bank check cashing services.

14 percent have used pawn shops.

12 percent have used rent-to-own.

7 percent have used payday lending.

Ab 8 h d f d i i iAbout 8 percent have used refund anticipation loans during the past 5 years.

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Alternative financial services used by d b k d h h ldunderbanked households

Underbanked households account for 19.4 percent of all pbanked households. By definition, all underbanked households have used an AFS at least once or twice a year.AFS at least once or twice a year. Among underbanked households:

81 percent use non-bank money orders.30 t b k h k hi i30 percent use non-bank check cashing services.16 percent use payday lending.16 percent use pawn shops.13 i13 percent use rent-to-own services. 13 percent have used refund anticipation loans during the past 5 years.

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Reasons underbanked householdsAFS t ti d tuse AFS - transaction products

Non-bank Money Orders Non-bank Check CashingNon-bank Money Orders

57.8The place to purchasemoney orders is more

convenient

17 6

55.6To get money faster

The place is moreconvenient

Non-bank Check Cashing

3 1

9.0

27.7

The place feels moref t bl th b k

Other

Banks charge more formoney orders

2.5

10.4

10.6

17.6

Bank charges more tocash checks

Other

Don't have a bankaccount

To get money faster

0.5

2.0

3.1

Unknown

Banks do not sell moneyorders

comfortable than a bank

0.7

0.7

2.0

2.5

Unknown

The place to cash checksasks for fewer IDs

Feel more comfortablethan at a bank

cash checks

0.0 10.0 20.0 30.0 40.0 50.0 60.0Percentage of Underbanked Households That Use Non-Bank Money Orders

0.0 10.0 20.0 30.0 40.0 50.0 60.0Percentage of Underbanked Households That Use Non-Bank Check Cashing

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Reasons underbanked householdsAFS dit d tuse AFS - credit products

Payday Lenders Pawn ShopsPayday Lenders Pawn Shops

43.2

Th d l l i

Easier to get a paydayloan than to qualify for a

bank loan 37.9Easier to visit pawn shopthan qualify for bank loan

11 4

16.0

25.9

Other

Don't qualify for bankloan

The payday loan place ismore convenient

12.5

18.8

21.2

Don't qualify for a bankloan

Other

The pawn shop is moreconvenient

1.1

2.4

11.4

Unknown

Payday loan service feelsmore comfortable than a

bank

Other

0.6

2.0

6.9

Unknown

More comfortable at apawn shop than at a bank

Banks don't have smallloans

0.0 10.0 20.0 30.0 40.0 50.0 60.0Percentage of Underbanked Households That Use Payday Lenders

0.0 10.0 20.0 30.0 40.0 50.0 60.0Percentage of Underbanked Households That Sell Items at Pawn Shops

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Help from Financial InstitutionsHelp from Financial Institutions

Products at some financial institutions:Low cost / no cost checking accounts.2nd chance checking accounts.Free direct deposit & ATM access to cash.Low initial deposit savings accounts.Prepaid debit cards (alternative to bank account)Prepaid debit cards (alternative to bank account).

Loan products to build credit worthiness:Certificate of deposit loans.pPrepaid credit cards.Small dollar loans & Alternative Payday Loans

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COMMUNITY AFFAIRS OFFICERS

ATLANTA Thomas Stokes AL, FL, GA, NC, SC, VA, WV

BOSTON Tim DeLessio CT, NH, ME, MA, RI, VT

CHICAGO Angelisa Harris IL, IN, KY, MI, OH, WS

DALLAS Eloy Villafranca TX, CO, NM, OK

KS CITY Teresa Perez IA, KS, MN, MS, NE, ND, SD

MEMPHIS Clinton Vaughn AR, LA, MS, TN

NEW YORK Valerie Williams DC, DE, MD, NJ, NY, PA, Puerto Rico, USVI

S C SCO O C29

SAN FRANCISCO Linda Ortega CA, AL, AZ, HI, ID, MN, NE, OR, UT, WA, WY, Guam

Q ti n ?Questions?

Eloy Villafrancaevillafranc@fdic.gov

(972) 761 8010(972) 761-8010eloy villafranca@opr ca goveloy.villafranca@opr.ca.gov

(916) 716-323630

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