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Unbanked status and use of alternative financial services among minority populations

Published online by Cambridge University Press:  28 February 2019

Silvia Helena Barcellos  and
Gema Zamarro
Silvia Helena Barcellos*
Affiliation:
University of Southern California, Dana and David Dornsife College of Letters Arts and Sciences, CESR, 635 Downey Way, Los Angeles, California90089-4012, USA
Gema Zamarro
Affiliation:
University of Southern California, Dana and David Dornsife College of Letters Arts and Sciences, CESR, 635 Downey Way, Los Angeles, California90089-4012, USA University of Arkansas, College of Education and Health Professions, Department of Education Reform, 219B Graduate Education Building, Fayetteville, AR72701, USA
*
*Corresponding author. Email: sbarcell@usc.edu
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Abstract

A large number of Americans do not have bank accounts (the ‘unbanked’) or rely on costly alternative financial services (AFS) such as payday loans (the ‘underbanked’), with implications for wealth accumulation and retirement preparedness. Using primary data, we document large racial/ethnic differences in unbanked and in frequent AFS usage rates. We study the role of socio-economic status (SES), financial literacy, trust in financial institutions, networks, and time preferences in explaining these gaps. While these variables explain a large fraction of the white-minority gaps in unbanked status the same is not true for gaps in AFS use. A Blinder-Oaxaca decomposition confirms these patterns: gaps in unbanked status are mostly explained by differences in endowments across groups, for AFS gaps differences in returns to endowments have the largest explanatory power. Our findings suggest that, while related, unbanked and underbanked are distinct concepts with different underlying causes that may require different policy responses.

Keywords

Alternative financial servicesminoritiesunbankedunderbankedD14D91
Type
Article
Information
Journal of Pension Economics & Finance , Volume 20 , Special Issue 4: New Longitudinal Data for Retirement Analysis and Policy , October 2021 , pp. 468 - 481
Copyright
Copyright © Cambridge University Press 2019

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