Unbanked and impoverished? Exploring banking and poverty interactions over time

In 2019, the Federal Deposit Insurance Corporation (FDIC) reported that 7.1 million households in the United States (5.4%) were unbanked and lacked a checking or savings account). Using three leading household surveys, this paper documents how the interaction between bank access and poverty has evolved over time. We present a historical time series of unbanked rates, showing high-unbanked rates for those in poverty even with increases in financial access over time. In the 1980s, 49.6% of households in poverty were unbanked while 22.8% were unbanked in 2019. Unbanked rates were even higher for Black and Hispanic households that were in poverty. In the 1980s, these groups had unbanked rates of 73.6% and 66.5% which declined to 38.4% and 31.8% in 2019, respectively. To explain differences in banking rates by race, we use binary Kitagawa-Oaxaca-Blinder decompositions. Socio-demographic characteristics explain less than half the difference in unbanked rates for Blacks and around half for Hispanics.