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A Closer Look at America's Unbanked and Underbanked Youth.

Updated: Jan 18, 2022

Ask any member of any major bank's sales and marketing team and they are sure to go on and on about some of the challenges faced by them and their colleagues when trying to reach younger audiences, those between the ages of 18 and 35.

Note: This article is derived from parts of our upcoming book, Drive-thru Only: Understanding America's unbanked and underbanked population.

So, who is considered “Unbanked “or “Underbanked”?

In the United States, the federal government defines the Unbanked as the proportion of U.S. households that do not have an account at an insured institution. These are typically folks who have no bank accounts or access to premium banking services.

The Underbanked are those that have an account but obtained (nonbank) alternative financial services in any 12-month period. Specifically, the Underbanked are those households that have checking and/or savings accounts at FDIC-Insured institutions but also obtained other financial services and products such as money orders, payday loans, rent-to-own services, or auto title loans.

Age-old problem

The disparity in the successful integration of banking products i.e checking and savings accounts, as well as credit cards between folks of different age groups, is quite a significant one. Ask any member of any major bank's sales and marketing team and they are sure to go on and on about some of the challenges faced by them and their colleagues when trying to reach folks of different age segments.

These challenges tend to evolve with each age-group or segment, none more so than folks in the 18 to 35 range. The truth is, folks who for the most part grew up in the technology age, consume products and services in ways that differ from any past generation. These guys consistently exhibit unique buying behaviors in almost all categories with financial products being no different. According to U.S-based data science firm, Statista, 48% of consumers ages 18-24 use mobile banking apps to access their bank accounts on a weekly basis or more. Another 35% of folks in the 25-34 age-range do so as well. This is in stark contrast to 67% of folks age 65 plus who do not use mobile banking apps at all.

Frequency of mobile banking app use in the United States in 2017, by age

Source: Statista

Untapped potential

According to the FDIC, 10 percent of American households, ages 15-24 remained unbanked as of the latest 2017 survey. According to the same study, 8.5 percent of young adults between the ages of 24 and 35 were also unbanked. Compare these numbers to that of folks 65 years old or more. A mere 3.9 percent of folks in this age-group remain unbanked.

Sure the unbanked rate among younger consumers has seen a sharp decline over the past ten years. In 2013 15 percent of Americans ages, 15 to 24 were unbanked. 12.5 percent of folks 25 to 34 were also reported as not having any bank accounts. The decline in unbanked rates among younger consumers during this time period can be attributed to the availability of the internet and mobile banking apps across the board, and the fintech revolution.

In the 21st century, one does not have to leave the comfort of their homes to set up a bank account, take out a business or personal loan or line of credit. Outfits like SOFI and Credit Karma make it very easy for consumers around the country, especially young folks to easily access quality banking products and services.

"Sitting" on the sidelines

That being said, based on data provided by the U.S Department of Labor and other reputable sources, it is plain to see that some young folks in the United States for one reason or the other still remain outside of the mainstream banking system. Whether via the use of limited banking services, or none at all. By some estimates, financial volatility plays a huge role in this phenomenon.

Unlike baby boomers, younger consumers struggle to keep up with their financial responsibilities and thus tend to have a much lower net worth and other financial assets as compared to older consumers.

Since the top reason, folks across all age state for not having bank accounts is the lack of funds to keep in said account(s), it is reasonable to draw the conclusion that this is the case with younger consumers as well. In fact, according to CNBC, Baby boomers are "12 times wealthier than Millennials.

Call and response One quick look at the financial profile of the average young person age 18-35, and you can clearly see various reasons for the lack of, or lower participation rates in the banking system. Sure, one could argue that the average person gains more financial stability as they age. This is often due to the fact that as we establish ourselves in our chosen profession, as retirement accounts collect interest and once we get married and have families, we save more, make more, and are more responsible with our money.

All of these are valid points. However, the financial crisis of 2007/2008 and the following recession changed the game a bit. Younger folks these days, even compared to baby boomers or even gen x-ers have less financial power at comparable age-ranges. When compared to past generations and adjusted for inflation and cost of living increases, younger consumers still earn less than previous generations. Young folks also save less of their paychecks. A 2017 GoBankingRates survey found that most “young millennials” — which personal finance and banking consultancy defines as those between 18 and 24 years old — had less than $1,000 in their savings accounts. Nearly half had nothing saved at all. A number that had increased from 31% to 46% in 2016. According to GBR, even older Millennials ages 25 to 34 struggle to save money. The firm found that 61 percent had less than $1,000 in their savings accounts and 41 percent had nothing at all. A number that has increased substantially based on past studies. Millennials, an increasingly significant portion of the population just have less financial freedom as a group than older cohorts.

A paradigm shift

Take, for example, the fact that in 1998, the average net worth of folks between the ages 20-35 was $103,400. Folks in the same age group today have an average net worth of just above $100,000. Add the exponential rise in the cost of living and housing costs over the same period and what you have is a population of young folks struggling to make ends meet across the board.

Twenty-one questions

Safe to say that any approach to solving or helping reduce the unbanked and underbanked rates among America's youth must be holistic. Banking firms, government agencies, and tech startups must try to resolve this issue, not just looking at ways to enroll young folks in various banking products, but rather, we must try to solve the issue by looking at and addressing root causes.

Wage increases and homeownership

We know one's financial picture is closely tied to their source of income. Sure some young folks come into money via inheritance and various entrepreneurial endeavors. The average person, however, earns money the old-fashioned way: by working for it. And since the quality of said work, or rather the pay for work is on the decline, we as a community must innovate, leaning on our elected officials to help do things like raise the federal minimum wage as well as invest heavily in new industries as well as the country's aging infrastructure to help put more money in the pockets of young folks.

Since homeownership among younger consumers has been on a steady decline since the days of the housing crisis, and also since most Americans build personal wealth via owning a home, it is vital that steps are taken both in the private sector and through government intervention to facilitate homeownership among young folks.

A bold new plan, done through Housing and Urban Development, the Federal Reserve bank, and private baking entities can help make buying quality homes a reality for millions of young Americans.

These are but a few ways to help increase the overall financial power of America's youth and to help reduce the unbanked and underbanked rates among young folks in the U.S.

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