Practicing Sound Money: Can the UnBanked Participate?

IMG_4608It’s shocking when you hear of someone functioning day-to-day without a bank account. But according to the Federal Deposit Insurance Corporation, this trend is not all that uncommon.

The FDIC reports that nearly 17 million Americans are unbanked, limiting them in their ability to execute financial transactions and accumulate wealth-building assets. Moreover, 51 million are referred to as underbanked, meaning that they may have to rely on options like check-cashing services and high-interest lending, just to make ends meet.

There are myriad reasons behind this lack of engagement with traditional banking systems. For starters, a growing number of Americans, particularly African-Americans, have grown leery of banks due to predatory lending and excessive fees. Others are simply unable to obtain even a basic checking or savings account, due to a tarnished financial history.

One Pew study found that a third of all households that closed their bank accounts did so because of unexpected or unexplained fees.

Then there is the case of growing numbers of young Americans who have voluntarily chosen to self-select out of financial institutions. FDIC data shows that a surprising 50% of those between the ages of 18 to 24 are unbanked or underbanked.

When viewed through a global lens, the plight of the unbanked becomes a little brighter. According to a study conducted by Global Findex, 700 million adults worldwide became account holders between 2011 and 2014, representing a 20% drop in the unbanked. This shift has been largely attributed to the mass adoption of mobile money service providers. A great example of this is in sub-Saharan Africa where these mobile solutions (e.g. M-Pesa in Kenya) are rapidly expanding access to financial services, particularly among women, the poor and rural people. This advancement is expected to continue as internet access expands in these remote areas.

 Saving Money & Assets:  Is There a New Normal?

Yes, I believe there is. The world of financial technology, known as FinTech, is spawning a wealth of disruptive innovations designed to reduce reliance on traditional bank and investment holding accounts. It promises to deliver consumer models that offer ease, speed and privacy in transacting with stores of value, whether in currency or hard assets.

In short, most people only need two basic tools to ensure the efficient flow of their resources: a place to hold deposits and a means of sending and receiving them.  

A growing number of Americans are already utilizing off-the-grid ways of sending and receiving money. Just last week, I had a conversation with an IRS agent who indicated that they are just now getting hip to the fact that PayPal accounts have been an under-the-radar alternative to traditional banking for those seeking to avoid financial detection. Debit cards constitute a whole economy in themselves, where one can obtain an online checking account with only a few basic pieces of information.  

At the end of the day, it’s one thing to simply hold and transact one’s resources. The bigger question is in how to make them grow over time. Robert Kiyosaki, author of ‘Rich Dad, Poor Dad’, espouses clarity about what really is an asset. He defines an asset as something that appreciates over time; a distinction that is often missed by those of us engaged in the daily grind of making ends meet, paycheck to paycheck.

Options for the Unbanked

Top wealth-building assets typically fall into four categories. And with all of the innovations taking place in the FinTech arena, they are typically accessible to those without a traditional checking or savings account. Here they are:

Paper Assets: This category of assets include stocks, bonds, mutual funds and retirement accounts; all tools which allow you to invest in things like stock options, futures and the foreign exchange markets. There are also options like real estate investment trusts (REITs), and exchange-traded fund (ETFs) that allow for capital gains or just simple cash flow. Options do exist here for the unbanked who are willing to do their homework. In fact, some of these investment accounts come with checking accounts and debit cards that don’t subject the consumer to onerous qualification reviews.

Commodities: Here we are talking about metals (e.g. gold, silver), food (e.g. corn, coffee, sugar) and raw materials (e.g. oil and gas). If you are unbanked but want to invest in what can be a lucrative realm, then take some baby steps and increase your financial education acumen.

Real Estate: Investing in real estate is great because it can offer cash-flow from rental properties or capital return from purchasing and flipping a property. Real estate generally involves leveraging the money of others to purchase an asset. But can you do this without a checking or savings account? Technically yes, although this movement is in its very early stages. 

Small Business: Entrepreneurship is where the vast majority of wealth is being created, these days; an avenue that is even open to the unbanked. Here, PayPal has been a game-changer for businesses seeking a repository for their financial activities. I’d also like to give a shout out to Charles Schwab for their stealth no-fee accounts for small businesses.

Arguably, the days of having to step into a bank branch to establish an account are quickly coming to a close. With the infusion of technologies that allow one to bank solely from a computer or mobile device, the unbanked have unbridled choices for facilitating their sound money pursuits.