Report after report from the Federal Reserve and others shows a persistent and sticky attachment to cash in the US economy. Despite the long-expected demise of cash, to be replaced by insert your favorite candidate (debit, credit, PayPal, prepaid, mobile, Square), we all still carry a little (or a lot) of it, and your credit union’s ATMs need steady replenishing. In fact, consumers, especially low-income consumers, are much more likely to cycle in and out of debit and credit cards and the institutions that issue them than to give up on cash. Cash is still the common denominator of payments and the trusted fallback.
And it turns out that while credit unions, banks, and other financial institutions have been busy inviting un- and underbanked consumers to join the financial mainstream, many of them aren’t interested. They trust cash as much as they mistrust the often inscrutable rules of ChexSystems, overdraft fees, garnishment, and other backloaded account costs. This brief paints a picture of a group of low-income consumers’ financial habits and illuminates the challenges and opportunities in serving them.
What is the research about?
The author, Rourke O’Brien, conducted in-depth interviews in California with 37 CalWORKs recipients. To qualify for CalWORKs state aid, a single parent with two children must earn less than $12,000 annually, and the maximum benefit is $600 per month.
The interviews show a group that is aware of the limits of a low-income, low-asset lifestyle. What’s striking is the concurrent mistrust that many have for traditional financial institutions, despite the fact that unbanked consumers spend hundreds of dollars per year conducting routine financial transactions. They especially feel the costs of accessing cash, which for many is their payment and savings vehicle of choice. Contrary to stereotypes, they seem wary of payday loans and even responsible short-term debt. And many of them devise elaborate savings mechanisms outside of traditional savings accounts.
What are the credit union implications?
This brief highlights the role policymakers can take in easing the financial lives of financially tenuous citizens, but credit unions with members or potential members in the same straits can take a more immediate role by making sure that, for all its popularity, cash is only one of several good options for low-income households.
This report is sponsored by the National Credit Union Foundation (NCUF).