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information on 47,000 unbanked and underbanked households.

The two surveys yielded similar findings regarding several factors that are critical to a fuller understanding of the problem and potential solutions:

■ Size of the unbanked and underbanked populations─There are about 9.1 million unbanked households and 21 million underbanked households in the United States, a combined population of more than 30 million households.

■ Racial and ethnic disparities─ African Americans and Hispanics were more likely to be unbanked and underbanked than the population as a whole.

■ Income disparities─Low-income households were more likely to be unbanked and underbanked. The median income of combined unbanked and underbanked households was substantially below the median for the total U.S. population.

The body of literature on the unbanked and underbanked population has grown, but studies have not focused specifically on the older population. To shed new light on the way the older unbanked and underbanked population uses both traditional and alternative financial services, AARP purchased a custom analysis of CFSI’s 2008 survey data focused on respondents aged 45 and older. These data form the basis for this Fact Sheet. The emerging portrait of older Americans can help policymakers, financial institutions, consumer advocates, and others to understand and develop solutions for the challenges faced by unbanked and underbanked individuals.

Findings2F

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The Older Unbanked and Underbanked Population Almost 17 million people age 45 and over live in unbanked or underbanked households in the United States.

■ Of these, about 5.4 million live in unbanked households and 11.1 million in underbanked households. Among the age 65+ population, about 1.3 million live in unbanked households and 2.3 million in underbanked households.3F

4,4F

5 ■ The majority of underbanked and

unbanked persons in this survey were age 45 to 64. About 76 percent of all unbanked individuals age 45+ were 45 to 64. Similarly, 60 percent of the underbanked persons age 45+ were age 45 to 64, and 40 percent were age 65 and older.

African Americans and Hispanics are disproportionately represented among the older unbanked population.

■ Significant percentages of the unbanked in both age groups (45–64 and 65+) were members of racial or ethnic minority groups. ○ African Americans comprised

approximately 11 percent of all persons age 45–64 but almost a third of those who were unbanked. Hispanics comprised approximately 10 percent of persons age 45–64 but 13 percent of those who were unbanked.5F

6 ○ African Americans age 65 and

older comprised 8.5 percent of all age 65+ persons in the United States, yet comprised 22 percent of those within this age group who were unbanked. Hispanics age 65 and older comprised about 7 percent of all age 65+ persons in the United States, but

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18 percent of those identified as unbanked.6 F7

■ White persons comprised approximately 82 percent of all persons age 45–64 in the United States, and 89 percent of those who were underbanked. ○ White persons were

overrepresented among age 65+ CFSI respondents; this group comprises 87 percent of all persons age 65+ in the United States, but comprised 93 percent of age 65+ survey respondents who were underbanked.7 F

8 More than half of the older unbanked population had incomes of $25,000 or less.

■ The majority of older unbanked individuals who provided income information had incomes under $25,000.8F

9 Among underbanked individuals age 45–64, 56 percent reported incomes of $24,999 or less; among those 65 and older, 89 percent were in that low-income group.

■ The percentage of older underbanked

individuals with incomes under $25,000 was much lower: about 17 percent for those age 45–64 and 34 percent for those 65 and older. Thirty-five percent of the underbanked age 45–64 have incomes over $75,000.

Checking Accounts among Underbanked and Unbanked Respondents Older underbanked persons were more likely to have a checking account.

■ Persons age 45–64 (57 percent) and those age 65 and older (76 percent) were more likely to have a checking account than those age 18–44 (37 percent) and all persons age 18+ (49 percent).

■ Persons age 65+ were the most likely of all age groups to have a checking account (76 percent).

Underbanked and unbanked persons with lower incomes were less likely to have a checking account.

■ Only 38 percent of persons age 45–64 with incomes under $10,000, and

Figure 1 Many more underbanked and unbanked white persons had checking accounts than did

underbanked and unbanked black and Hispanic persons of similar age

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29 percent of persons with incomes between $10,000 and $25,000, had a checking account, versus 59 percent of similarly aged persons with incomes of $25,000–$50,000.

■ Forty-seven percent of persons age 65+ with incomes under $10,000, and 67 percent of those with incomes between $10,000 and $25,000, had a checking account, versus 92 percent of similarly aged persons with incomes of $25,000–$50,000.

Almost half (47 percent) of underbanked and unbanked African Americans age 65+ and 43 percent of similarly aged Hispanics had a checking account, versus 80 percent of whites age 65+. The likelihood of having a checking account increased with age within racial/ethnic groups.

Financial reasons topped all others in preventing persons from having a checking account.

■ Four out of the six reasons most frequently selected for not having an account were financial concerns rather than privacy or customer service issues.

■ Across age, income, ethnic/racial groups, and underbanked versus unbanked status, respondents cited the following reasons most frequently for not having a checking account: “I don’t have enough money to make an account useful,” “The accounts have hidden fees and charges,” “A checking account is too expensive,” and “The minimum balance for these accounts is too high.” The other top reasons cited were “I am concerned about my personal information getting stolen or misused” and “A checking account requires too much documentation.”

Figure 2Ages 45–64: “Don’t have enough money to be useful” was most frequently chosen

across income groups by underbanked and unbanked individuals as a reason not to have an account

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Where Do Underbanked and Unbanked People Prefer to Conduct Financial Transactions? Banks or credit unions were the top choice for all age groups.

■ Half of underbanked and unbanked persons over age 45 (52 percent) listed banks or credit unions as the preferred institution for financial transactions, compared with 35 percent of persons age 18–44 and 43 percent of all persons age 18+. The 65+ age group had a slightly stronger preference (55 percent) than those age 45–64 (50 percent).

Supermarkets were preferred over banks and credit unions by certain income groups.

■ Almost half (47 percent) of underbanked and unbanked persons age 45–64 with incomes between $10,000 and $24,999 selected a supermarket as their preferred institution for financial transactions, versus 23 percent who preferred a bank or credit union.

■ More than a third (35 percent) of underbanked and unbanked persons age 65+ with incomes under $10,000 preferred to use a supermarket, versus 30 percent who preferred to use a bank or credit union.

Underbanked and unbanked Hispanics and African Americans age 45–64 were much less likely than whites to prefer banks or credit unions for financial transactions.

○ Only 30 percent of Hispanics and 26 percent of African Americans age 45–64 preferred to use a bank or credit union, compared with 56 percent of whites of similar age.

■ Thirty-five percent of Hispanic and 26 percent of African Americans age 65+ preferred to use a bank or credit

union, compared with 60 percent of whites of similar age.

Unbanked persons of both age groups were much less likely than underbanked persons to prefer banks or credit unions for financial transactions.

■ Just 13 percent of unbanked persons age 45–64 preferred to use a bank or credit union, compared with 70 percent of underbanked persons of similar age.

■ Less than a third (31 percent) of unbanked persons age 65+ preferred to use a bank or credit union, compared with 62 percent of underbanked persons of similar age.

Where Do Underbanked and Unbanked People Turn to Borrow Money? Underbanked and unbanked persons age 45-64 borrowed as frequently as all persons age 18+.

■ Persons age 45–64 (27 percent) were almost as likely to have borrowed in the 12 months prior to the survey as persons age 18–44 (30 percent) and all persons age 18+ (28 percent).

■ Individuals age 65+ were less likely to have borrowed in the 12 months prior to the survey than persons age 45–64 (20 percent and 27 percent, respectively).

Underbanked and unbanked Hispanics and African Americans age 65+ were more likely to have borrowed in the previous 12 months than their age 45–64 counterparts.

■ Thirty-three percent of Hispanics age 65+ and 29 percent of African Americans age 65+ reported borrowing in the previous 12 months, compared with 28 percent of Hispanics age 45–64 and 17 percent of African Americans age 45–64.

■ In contrast, 19 percent of whites age 65+ reported borrowing in the

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previous 12 months, compared with 30 percent of whites age 45–64.

The underbanked were more likely to have borrowed in the previous 12 months than the unbanked.

■ Thirty-four percent of underbanked persons age 45–64 reported borrowing in the previous 12 months, compared with 17 percent of unbanked persons of similar age.

■ Twenty-two percent of underbanked persons age 65+ reported borrowing in the previous 12 months, compared with 16 percent of unbanked persons of similar age.

Obtaining Small Loans Banks or credit unions were the first choice of underbanked and unbanked persons age 45+ to borrow $1,000 or less.

■ Forty-three percent of persons age 45–64 and 55 percent of persons age 65+ would turn first to a bank or credit union to borrow less than $1,000, compared with 26 percent of persons age 18–44 and 36 percent of all persons age 18 and older.

■ Thirty-two percent of persons age 45–64 and 23 percent of persons age 65+ would first turn to a friend or family member, compared with 56 percent of persons age 18–44.

Banks or credit unions were preferred as the first source of loans by all but persons age 45–64 with incomes under $25,000.

■ Sixty-nine percent of persons age 65+ with incomes between $25,000 and $50,000 would turn first to a bank or credit union, while 11 percent would turn first to a friend or family member. Persons age 45–64 with similar incomes showed an

45% 29% 31%

10%

38% 30% 42% 41% 57%

69%

5% 2% 1%

9% 23% 16% 18% 8%

19%

29% 37% 1%

4% 3%

8% 13%

7%

1% 2%

1%

1%

0%

20%

40%

60%

80%

100%

Under $10,000 (n = 136)

$10 - $24,999 (n = 204)

$25 - $49,999 (n = 255)

Under $10,000 (n = 73)

$10 - $24,999 (n = 116)

$25 - $49,999 (n = 103)

45–64 65+ Family/ relative Friend Bank/ credit union Cash advance on credit card Payday lender Other

Figure 3 Underbanked and unbanked persons age 65+ with incomes over $10,000 were most likely

of all ages and incomes to borrow first from a bank or credit union

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almost equal preference for a bank or credit union and a friend or family member.

■ Among persons age 45–64 with incomes less than $10,000, 52 percent would first turn to a friend or family member to borrow $1,000 or less. Persons age 65+ with similar incomes showed an almost equal preference for a bank or credit union (41 percent) and a family member or friend (40 percent)

Hispanics and African Americans age 45–64 chose to borrow first from friends or family members.

■ Forty-two percent of Hispanics age 45–64 would first turn to a friend or family member, compared with 32 percent who would first turn to a bank or credit union to borrow $1,000 or less. Thirty-nine percent of African Americans age 45–64 would first turn to a friend or family member, compared with 24 percent who would first turn to a bank or credit union to borrow $1,000 or less.

■ In contrast, 47 percent of whites age 45–64 would first turn to a bank or credit union, compared with 32 percent who would first turn to a friend or family member to borrow $1,000 or less.

Underbanked persons of both age groups most frequently chose banks or credit unions, while unbanked persons most frequently chose family or friends as the first place to turn to borrow $1,000 or less.

■ Twenty-two percent of underbanked persons age 45–64 would first turn to a friend or family member, compared with 56 percent who would first turn to a bank or credit union to borrow $1,000 or less. Sixteen percent of underbanked persons age 65 and older would first turn to a friend or family member, compared with 63

percent who would first turn to a bank or credit union to borrow $1,000 or less.

■ Almost half (46 percent) of unbanked persons age 45–64 would first turn to a friend or family member, compared with 24 percent who would first turn to a bank or credit union to borrow $1,000 or less. In addition, 48 percent of unbanked persons age 65+ would first turn to a friend or family member, compared with 29 percent who would first turn to a bank or credit union to borrow $1,000 or less.

What Types of Loans Did This Population Use in the Past? Personal loans, home equity loans, and lines of credit were the most common types of loans used. Survey respondents of all ages selected personal loans most frequently among the types of loans.9F

10 Auto title loans were also common across age groups.

■ Thirty-nine percent of persons age 45–64, 31 percent of those age 65+, and 25 percent of those age 18–44 used a “personal” loan in the past, compared with 30 percent of all persons age 18+.

■ Twenty-five percent of persons age 45–64, 22 percent of persons age 65+, and 15 percent of persons age 18–44 used an auto title loan in the past, compared with 19 percent of all persons age 18 or older.

Persons of both age groups (45–64 and 65+) with incomes between $25,000 and $50,000 were more likely to have used a payday loan than persons with incomes below $10,000.

■ Very few persons with incomes under $10,000 had used a payday loan in the past.

■ In contrast, 15 percent of persons age 45–64 earning between $10,000 and $24,999 and 6 percent of persons age

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65+ of similar income used payday loans.

■ In addition, 8 percent of persons age 45–64 earning between $25,000 and $49,999 and 14 percent of persons age 65+ of similar income used payday loans.

Underbanked persons age 45–64 were more likely to have used an auto title loan and cash advance on a credit card than similarly aged unbanked persons.

■ Thirty-one percent of underbanked persons age 45–64 reported using auto title loans, compared with 16 percent of similarly aged unbanked persons.

■ Twenty-five percent of underbanked persons age 45–64 reported using a cash advance on a credit card, compared with 10 percent of unbanked persons in the same age group.

Concluding Observations

AARP’s Public Policy Institute estimates that approximately 16.5 million persons age 45 and older live in unbanked households.10F

11 The finding that persons age 45–64 are more likely than those age 65+ to be unbanked or underbanked is especially significant, given that age 45–64 is the primary time when most adults focus on saving for retirement. Lack of access to money management and savings vehicles that are well designed for the needs of this group is likely to be a severe impediment to their accumulation of retirement assets. The relatively high proportion of lower-income and African American and Hispanic older persons who are unbanked or underbanked is equally disturbing. These groups already start with lower levels of income and assets.11F

12,12F

13 The lack of access to key financial tools only adds to the

difficulties they face in managing their financial resources and saving for retirement and other critical needs.

The findings that this cohort uses or prefers to use banks or credit unions to conduct financial transactions and secure a small loan demonstrate that the unbanked and underbanked recognize the advantages of participation in the banking system. Further, this preference suggests that unbanked and underbanked persons might be willing to connect or reconnect with banks and credit unions if offered products appropriate to their needs.

In this regard, the finding that respondents most frequently selected “A checking account is too expensive” and “I don’t have enough money to make an account useful” as reasons for not having a checking account is instructive both for product design and financial education purposes. Further, the heavy dependence of this group on “personal” loans and their use of such risky products as auto title loans suggest the need for small-loan products that can provide liquidity to a household budget without putting borrowers’ future earnings and personal property at risk.

In fact, policymakers are aiming to encourage the development of products and services better suited to the needs of unbanked and underbanked individuals. In 2004, Michael Barr, now assistant treasury secretary for financial institutions, suggested that “checking accounts…are not well suited to low-income people, and so we ought to be moving away from a focus on checking accounts…towards debit-based access electronic accounts.”13F

14 The FDIC has also issued for comment a proposed template for an affordable all-electronic transactional account for low- and moderate-income consumers. The

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Treasury Department’s Direct Express Card for federal benefits is a good example of such debit-based electronic accounts. In addition, efforts are under way to reach underserved populations and low-income communities—for example, the U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund.14F

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This Fact Sheet highlights a significant problem facing many older Americans that has heretofore largely been hidden from view. It provides the first analysis of the older unbanked and underbanked population and demonstrates that the problem affects a large number of older Americans—and older African Americans and Hispanics in particular. It is hoped that these findings will alert opinion leaders, policymakers, financial institutions, nonprofits, and others to the extent to which older Americans are financially underserved and spur greater efforts to craft new policies, products, and services to meet the needs of this population.

Methodology

CFSI commissioned Experian to conduct a study of the unbanked and underbanked age 18+ through a combination of telephone and mail surveys. In 2008, Experian collected a nationally representative sample of 2,799 completed surveys with a margin of error of 1.9 percent. Results were weighted back to the U.S. population proportionally. The study defined “unbanked” as having no current checking account or current savings account. “Underbanked” was defined as having a current checking account and/or current savings account, but making one or more nonbank financial transactions in the past 30 days.

For the custom data analysis for AARP, CFSI combined age ranges to permit comparisons and inferences from the responses. The age groupings were 45 and older, 45–64, and 65 and older. CFSI cross-tabulated these responses for specified survey questions with the following groups: unbanked vs. underbanked, race/ethnicity, income, and employment status. Only statistically significant differences across population subgroups are highlighted in this Fact Sheet. Statistical significance was evaluated using chi square statistics.

1 Federal Deposit Insurance Corporation (FDIC), National Survey of Unbanked and Underbanked Households (Washington, DC: FDIC, December 2009). The study defined “unbanked” as having no current checking account or savings account and “underbanked” as having a current checking account and/or current savings account, but having made one or more nonbank financial transactions in the past 30 days. 2 Isabell Sawhill and John E Morton, Economic Mobility in America: Is the American Dream Alive and Well? (Washington, DC: Economic Mobility Project of the Pew Charitable Trusts, February 2008). http://www.economicmobility.org/.../EMP20AmericanDreamReport.pdf (accessed June 23, 2010). 3 All data presented under “Findings”, unless otherwise footnoted, apply only to underbanked and unbanked respondents to the CFSI survey.

4 Current Population Survey, January 2009 Unbanked/Underbanked Supplement File, Current Population Survey (CPS) 09, http://www.census.gov/apsd/techdoc/cps/cpsjan09.pdf (accessed July 14, 2010).

5 The higher rate of bank account ownership among people age 65+ may be related to their receipt of Social Security benefits. The Social Security Administration encourages direct deposit of benefits checks to a bank account or a debit card. As of January 2010, 83 percent of all Social Security and Supplemental Security Income beneficiaries received their benefits by

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direct deposit. See http://www.ssa.gov/deposit/DDFAQ898.htm.Direct deposit to either a bank account or a Treasury-issued debit card will become mandatory for all beneficiaries of Social Security and other federal benefit programs by 2013. See http://www.treas.gov/press/releases/tg644.htm.

6 Population percentages are based on the Current Population Survey March Supplement, U.S. Census Bureau via Data Ferret.7 Ibid.8 Ibid.9 Many survey respondents, particularly those who are unbanked, did not provide income information. Among the unbanked, 30 percent of those age 45–64 and 40 percent of those 65 and older did not supply income information.10 The CFSI survey instrument did not define “personal loan.” Respondents could have interpreted this term as a bank loan or a loan from a family member or friend. Therefore it is hard to say whether this population favored bank loans over alternative financial services or informal arrangements.11 Source: Jan 2009 CPS FDIC Unbanked Supplement.12 National Hispanic Council on Aging, the Economic Security Status of Hispanic Older Adults in the United States (Washington, DC: National Hispanic Council on Aging, 2008).http://www.nhcoa.org/economic_security.php(accessed June 17, 2010).

13 Tatjana Meschede, Thomas Shapiro, Laura Sullivan, and Jennifer Wheary, Severe Financial Insecurity among African American and Latino Seniors (Waltham, MA: Institute on Assets and Social Policy, 2010). http://iasp.brandeis.edu/pdfs/SFSI.pdf (accessed June 17, 2010.)14 “Tapping the Unbanked Market” Symposium,FDIC, 2004. http://www.fdic.gov/consumers/community/unbanked/tum05.html.15 In fiscal year 2009, the CDFI Fund helped 50 CDFIs to offer mortgages to 1,998 homebuyers, and 11 CDFIs to establish accounts for 4,234 unbanked persons.http://www.cdfifund.gov/docs/2010/cdfi/Performance-and-Accountabilty-Report-FY-2009.pdf.

Fact Sheet 198, July 2010

Written by Ann McLarty Jackson, Elizabeth Costle, George Gaberlavage, Naomi Karp, and Neal WaltersAARP Public Policy Institute601 E Street, NW, Washington, DC 20049202-434-3910, ppi@aarp.org© 2010, AARP.Reprinting with permission only.