"Unbanking" A Dangerous Choice In L.A.

LOS ANGELES -- Half of low-income families in Greater Los Angeles turn to costly and unregulated alternative financial services (AFS) rather than banks to meet their monetary needs, according to a new survey released by the Pew Health Group's Safe Banking Opportunities Project. The study reviewed the financial habits of 2,000 households, with and without bank accounts, finding that one-third of the unbanked conduct all transactions in cash, leaving them open to theft, fraud and loss.

The report, Unbanked by Choice: A Look at How Low-Income Los Angeles Households Manage the Money They Earn, provides a comprehensive look at the financial behaviors and attitudes of 1,000 unbanked and 1,000 banked families residing inGreater Los Angeles. It reveals that both are loyal to their financial service provider and utilize a variety of services on a regular basis.

The Safe Banking Opportunities Project has worked with more than 50 cities and localities to bring together banks, government leaders and community groups to promote responsible bank account ownership. Pew research has shown that having bank accounts can provide consumers a path to greater financial security because they allow users to avoid AFS, which can engage in expensive and predatory practices.

"This data points to a real need for safe and affordable banking services to move more families into the financial mainstream," said Eleni Constantine, report author and director of the Pew Health Group's Financial Services Portfolio.

Some key findings include:

• Having a bank account correlates with saving. More than twice as many banked (24 percent) as unbanked (11 percent) report they are earning enough to save money after paying their bills.
• Fully half of low-income households uses AFS. One in three banked respondents (37 percent) and two out of three of the unbanked (63 percent) frequently leverage AFS to meet their financial needs.
• Roughly one-third (29 percent) of the unbanked conduct all financial transactions in cash. The project estimates that there are 300,000 people operating in the cash-economy in Los Angeles alone.
• Respondents like and trust the financial provider they have. Nearly 70 percent of the banked population has had bank accounts for five or more years and 40 percent for more than 10 years. Generally, the unbanked trust check cashers at a high level.
• How workers are paid matters. Respondents that are paid by direct deposit have a bank account. Once banked, workers are likely to deposit all forms of earnings into their account.

"Getting more low-income residents to enter the world of the banked will require action from policymakers, the banking industry, employers and consumers," said Constantine.

To examine the financial behaviors of these two groups at a level of detail not previously attained, researchers conducted repeated, face-to-face interviews with randomly selected residents, over a period from July 2009 to September 2009. The survey was conducted in partnership with Emerging Markets and New American Dimensions in Los Angeles. To identify trends or changes of financial behavior over time, Pew is re-surveying the same households with a report to follow later this year.

About the Pew Health Group

The Pew Health Group is the health and consumer-product safety arm of The Pew Charitable Trusts, a nonprofit organization that applies a rigorous, analytical approach to improve public policy, inform the public and stimulate civic life.www.pewtrusts.org/safebanking.