Cashed Out: The High Cost of Living Outside the Banking System
Human resources has never directly deposited George’s paycheck from the franchise diner where he is a short-order cook; and, at thirty-four, George has never cashed his check at the bank on the corner. He has never viewed his account balances online, nor has he transferred money from one account to another. None of this is available to George, because, like 14.1 million adults in the United States, George has no bank accounts.
George obviously needs to cash his paychecks, and he’d love to start saving, but going through a bank seems out of reach. First, he can’t maintain a high enough balance to qualify for a free checking account; second, he can’t afford to pay a monthly fee for having a lower balance; and third, one look at the bank’s overdraft fee schedule convinces him: it’s not even worth trying to get a bank account—one rough month and he’ll be sunk.
George knows that banking is too expensive for him and his family, so he looks for other ways to manage his earnings and pay his bills. He gets by this way, month-to-month, but if he were to add up all of the costs associated with these alternatives, George might be surprised to discover that he is still being penalized regularly for the privilege of being poor.
Check-cashing institutions, for example, charge their customers between 1 and 12 percent of a check’s value; regular customers pay $200 per year on average to get their money in hand. To pay their rent and other bills, such as those to utility companies, the unbanked pay even more to convert their cash into money orders—it costs around a dollar to pay each bill this way. Reloadable prepaid debit cards may offer a less expensive option, but many of these come with activation fees, monthly fees, and withdrawal fees that can quickly add up.
To keep his family afloat, George uses all of the above options and more. He has had to take a payday loan more than once, filling out endless forms to verify his income and being charged higher fees than customers who have bank accounts to back them up. And he’s horrified to think that his family’s rent-to-own washing machine will cost as much as three machines by the time he’s paid his debt. Like many people struggling to survive day to day and between paychecks, George hesitates to add up the fees and interest that take such a huge bite out of his wallet. He has accepted that there is nothing he can do; the system is simply set up in a way that doesn’t value him or his family.
This loss of dignity that comes with living without a bank account is what really gets George down. More than once, George has been forced to do without a product or service for the sin of having only cash in his wallet. He’ll never forget how embarrassed he felt at his local body shop when he learned that repairing his engine was going to take three days and he had to decline their offer of a rental car. They needed a credit card to complete the transaction, and George didn’t have one. He’d thought the pile of fives and tens he’d scrimped and saved would suffice, but apparently his small bills were worthless in that situation.
His wife, Clare, understands their financial circumstances, but nonetheless, he hates disappointing her. They don’t talk about the things they’ve failed to do—like save money to put a down payment on a house—even though they both think about it every time the landlord raises their rent. It’s too painful for them to accept that they’ll probably live in their small, ever-more-costly apartment until they cannot afford even that. Even with their frugal spending, all the fees they are charged leave them unable to save, and with no documented financial history behind him, George can’t even think about qualifying for a mortgage.
George rarely talks about the weight of struggling to get by, but on a particularly stressful day, he spills his worries to a coworker, Sue. She nods in understanding and reminds him of PayActiv—the new program their company adopted to give employees access to their wages as they earn them. Not only does she use PayActiv to access her wages, but she also uses it to direct pay her bills and to save money to buy a used car. Best of all, she does all that for just one $5 fee every two weeks.
George vaguely remembers reading a pamphlet about the benefit. He had been skeptical. And naturally, he assumed that without a bank account, he wouldn’t be able to take advantage of it anyway.
But he trusts Sue, so he asks Bina in HR for another pamphlet. It looks too good to be true, but he asks Bina if he can use her computer to find out more on PayActiv’s website. What he finds there amazes him. As Sue had said, for just $5 every pay period—which he would pay only if he uses the app—George could access up to 50 percent of his earned wages. He could pay his bills directly—saving him the costs of money orders and late fees—and secure a Visa prepaid credit card that he could load his earned wages onto. And, much to his surprise, PayActiv offered tools for budgeting, saving money, and working with financial advisors. All for just $5 every two weeks?
If this is for real, George realizes, he’ll have more control over his financial life. Maybe he can step out of his spinning cycle of debt and start to plan for the future. He can say goodbye to rent-to-own and hello to saving for a home for his family. Plus, Sue tells him, he can pay for Uber and Amazon with his earned wages—all through the app and without having a bank account.
“This is for real,” Sue assures him. All he has to do is download the PayActiv app and set up an account. George does so immediately and feels excited about his future for the first time in a long while. As he gets back to work, he feels invigorated. PayActiv seems like a game-changer.
 FDIC National Survey of Unbanked and Underbanked Households (Federal Deposit Insurance Corporation, October 2018), https://www.fdic.gov/householdsurvey/2017/2017report.pdf.
 Tony Armstrong, “The Cost of Being Unbanked: Hundreds of Dollars a Year, Always One Step Behind,” NerdWallet, https://www.nerdwallet.com/blog/banking/unbanked-consumer-study/.
 Margarette Burnette, “How Money Orders Work: What You Should Know,” NerdWallet, November 26, 2019, https://www.nerdwallet.com/blog/banking/money-orders/.
 Beverly Harzog, “Best Prepaid Debit Cards,” U.S. News & World Report, August 10, 2018, https://creditcards.usnews.com/articles/best-prepaid-debit-cards.
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