Banking and Credit
Most adults have a bank account and are able to obtain credit from mainstream sources, but notable gaps in access to basic financial services still exist among minorities and those with low incomes. On average, individuals with capacity to borrow on a credit card are more prepared for financial disruptions.
Unbanked and Underbanked
Although the majority of U.S. adults have a bank account and rely on traditional banks or credit unions to meet their banking needs, gaps in banking access remain. Six percent of adults do not have a checking, savings, or money market account (often referred to as the "unbanked"). Two-fifths of unbanked adults used some form of alternative financial service during 2018—such as a money order, check cashing service, pawn shop loan, auto title loan, payday loan, paycheck advance, or tax refund advance.13 In addition, 16 percent of adults are "underbanked": they have a bank account but also used an alternative financial service product (figure 14).14 The remaining 77 percent of adults are fully banked, with a bank account and no use of alternative financial products.
The unbanked and underbanked are more likely to have low income, less education, or be in a racial or ethnic minority group. One percent of those with incomes over $40,000 are unbanked, versus 14 percent of those with incomes under that threshold. Similarly, 14 percent of blacks and 11 percent of Hispanics are unbanked, versus 4 percent of whites (table 11).
Table 11. Banking status (by family income, education, and race/ethnicity)
|Less than $40,000||14||21||64|
|Greater than $100,000||1||7||92|
|High school degree or less||13||21||66|
|Some college or associate degree||4||18||77|
|Bachelor's degree or more||1||9||89|
Individuals who use alternative financial services (one-fifth of adults) may need or prefer to conduct certain financial transactions through providers other than traditional banks and credit unions. The vast majority (89 percent) of people using alternative financial services use transaction services such as purchasing a money order or cashing a check at a place other than a bank (table 12). Twenty-eight percent borrowed money using an alternative financial service product, including payday loans or paycheck advances, pawn shop or auto title loans, and tax refund advances.
Table 12. Forms of alternative financial services used
|Alternative financial service||Among adult population||Among those using any alternative financial services|
|Money order, not from a bank||12||63|
|Cash a check, not at a bank||8||45|
|Payday loan or paycheck advance||3||17|
|Pawn shop or auto title loan||2||13|
|Tax refund advance||1||8|
Note: Respondents can select multiple answers.
Credit Outcomes and Perceptions
The majority of U.S. adults who applied for credit in 2018 were able to obtain it, but a sizable share report barriers or limitations to borrowing. During 2018, more than one-third of adults applied for some type of credit. Of those who applied for credit, 23 percent were denied at least once in the prior year, and 31 percent were either denied or offered less credit than they requested.
The incidence of denial or limitations on credit differs by the family income of the applicants and by their race and ethnicity. Lower-income individuals are substantially more likely to experience adverse outcomes with their credit applications than those with higher incomes. Among applicants with incomes under $40,000, 37 percent were denied credit, versus 10 percent of applicants with incomes over $100,000. Within each income bracket, black and Hispanic individuals are more likely to report an adverse credit outcome, relative to white adults (table 13).
Table 13. Credit applicants with adverse credit outcomes (by family income and race/ethnicity)
|Characteristic||Denied||Denied or approved for less than requested|
|Less than $40,000|
|Greater than $100,000|
Note: Among adults who applied for some form of credit in the past 12 months.
Negative perceptions may be an additional barrier to credit. About 1 in 10 adults put off at least one credit application because they thought that their application would be denied. This includes 5 percent who applied for some credit, but opted against submitting additional applications because they expected to be denied and 3 percent who desired credit but did not apply at all for fear of denial.
Although some people are forgoing credit applications because they expect a denial, most adults (79 percent) are at least somewhat confident that they could obtain a credit card if they were to apply for one. Those with low incomes are substantially less confident about being approved than those with high incomes (table 14). Additionally, credit perceptions differ by race and ethnicity, although these gaps are at least partially attributable to other socioeconomic factors that also vary by race.15 The patterns in 2018 are consistent with those seen in recent years.
Table 14. Confidence that a credit card application would be approved (by family income and race/ethnicity)
|Characteristic||Confident||Not confident||Don't know|
|Less than $40,000|
|Greater than $100,000|
Note: "Confident" includes people reporting that they are either very confident or somewhat confident.
In people's financial lives, credit cards can serve different functions at different times. For people who pay their balances off each month, credit cards are mainly a form of payment convenience and can be thought of more or less the same as using cash. For those who carry a balance, however, the card represents borrowing and carries a cost in the interest payment and any fees that are incurred.
Overall, 8 in 10 adults have at least one credit card, and the share with a credit card is higher among those with higher incomes, more education, or who are white (table 15). Among those with a credit card, 47 percent had paid their bill in full every month in the prior year. One-quarter carried a balance once or some of the time in that year; the remaining 27 percent carried a balance most or all of the time (figure 15). The frequency of regular borrowing with credit cards during 2018 is similar to 2017.
Table 15. Has at least one credit card (by family income, education, and race/ethnicity)
|Less than $40,000||61|
|Greater than $100,000||98|
|High school degree or less||69|
|Some college or associate degree||80|
|Bachelor's degree or more||95|
On average, individuals with capacity to borrow on a credit card are more prepared for financial disruptions. Transactional users of credit cards who never carry a balance are much more likely to say that they would pay an unexpected $400 expense with cash or its equivalent, compared to those who carry a balance most or all of the time or who do not have a credit card (table 16).
Table 16. Financial preparedness measures among adults (by credit card use)
|Credit card access and
|Pay unexpected $400 expense with cash or equivalent||Have 3-month rainy day savings fund||Confident credit card application would be approved|
|Have a credit card, frequency of carrying balance|
|Never carried an unpaid balance||88||78||95|
|Once or some of the time||63||53||87|
|Most or all of the time||40||29||78|
|Do not have a credit card||27||17||36|
Note: "Confident" includes people reporting that they are either very confident or somewhat confident. Frequency of carrying a balance is for the past 12 months.
Similar patterns are evident across these groups for other ways of coping with financial shocks, such as having a three-month rainy day savings fund and expressing confidence that their application for a credit card would be accepted. Financial buffers are also related to the incidence of problems in access to funds in a bank account (see box 3).
Box 3. Problems with Accessing Account Funds, Income Volatility, and Rainy Day Savings
Problems accessing funds in a bank account can affect anyone but may have consequences that are more serious for people with unpredictable incomes or low savings. New results from the 2018 survey show that people with volatile incomes are more likely to report problems accessing funds in a bank account. Adults with highly volatile incomes are more likely to have problems accessing a bank account even if their level of income is high or they have a buffer of savings.
With bank accounts, the timing of when deposited money is available to use depends on a number of different factors, and some delay is common. Withdrawals that occur when deposited money is not yet available for use can result in overdraft fees, and repeated overdrafts can lead to longer delays for future deposits.1 Other circumstances that can restrict customer access to funds in an account include fraud or suspected fraud and outages of bank computer systems.
To learn about problems accessing funds, the survey asks individuals with a bank account if they had difficulty getting money out of their bank account in the prior 12 months. Overall incidence is relatively low: 13 percent of adults with a bank account report at least one problem in accessing account funds. Problems with a bank website or mobile app (7 percent) and deposit holds or other delays in when funds were available to use (6 percent) are the most common problems. Smaller shares report that an account was locked or frozen (3 percent) or had other problems (1 percent).
Incidence of problems accessing account funds is higher for younger adults and minorities, but is only moderately related to income (table A). Among adults with a bank account, 18 percent of adults under age 30 report a problem accessing funds in a bank account, more than twice the rate of adults age 60 or older. Nineteen percent of blacks and 17 percent of Hispanics with a bank account report difficulty accessing funds, compared to 11 percent of whites. Low-income (less than $40,000) and middle-income ($40,000 to $100,000) adults with a bank account report problems at similar rates. A lower share of adults with high incomes (greater than $100,000) report problems.
Table A. Adults reporting problems accessing funds in an account in the past 12 months
|Less than $40,000||15|
|Greater than $100,000||10|
Note: Among adults with a bank account.
Income volatility is more strongly associated with problems accessing funds than is the level of income (figure A). For each income group, the incidence of difficulties accessing funds is lowest for those who say their income was "roughly the same" from month to month, and increases for those who say their income "occasionally varies" or "varies quite often." Among those who have the same degree of income volatility, the shares reporting a problem accessing funds are similar for those in the low- and middle-income groups. The high-income group is less likely to report problems for each degree of income volatility. Even so, high-income adults with highly volatile income report problems at about the same rate as low-income adults with stable income.
Having savings as a financial buffer helps some people manage fluctuations in income and reduce the urgency in accessing funds. Among those who say their income "occasionally varies," those who had three months of expenses set aside in "rainy day" savings are about half as likely (11 percent) to report difficulties accessing funds compared to those who did not have that financial buffer (21 percent).2 However, among those account holders who say their income "varies quite often," a buffer of savings does not lower the incidence of problems accessing account funds.
Financial service providers can help to mitigate some of these problems as well. Improvement to U.S. payment systems may benefit consumers with volatile incomes by making income available more quickly and increasing the transparency of the payments process.3 Efforts by banks and other financial service providers to minimize outages of computer systems and to detect and quickly address fraudulent account activity also can have a positive impact, particularly on consumers who may have few options for substituting to another account and less ability to wait for problems to be resolved.
1. For an overview of rules on deposit availability, see https://www.federalreserve.gov/pubs/regcc/regcc.htm. Return to text
2. This result is consistent with the analysis from Farrell and Greig (2015) arguing that financial buffers are an important strategy for handling sizeable fluctuations in both income and consumption for households. See Diana Farrell and Fiona Greig, Weathering Volatility: Big Data on the Financial Ups and Downs of U.S. Individuals (JPMorgan Chase Institute, May 2015), https://www.jpmorganchase.com/content/dam/jpmorganchase/en/legacy/corporate/institute/document/54918-jpmc-institute-report-2015-aw5.pdf. Return to text
3. For example, the Faster Payments Task Force, convened by the Federal Reserve, noted that "Unbanked and underbanked consumers might particularly benefit from faster, safe payment products with features such as faster access to funds and timely payment notification to facilitate easier cash-flow management." See Faster Payments Task Force, The U.S. Path to Faster Payments, Final Report Part One: The Faster Payments Task Force Approach (January 2017), https://fasterpaymentstaskforce.org/wp-content/uploads/faster-payments-final-report-part1.pdf. Return to textReturn to text
13. This fraction using alternate financial services was somewhat lower in 2018, but the latest survey clarified that only check cashing or money order services not conducted at a bank should be included. Thus, the two years of data are not directly comparable. Return to text
14. The most recent FDIC National Survey of Unbanked and Underbanked Households in 2017 found that a similar 6.5 percent of households were unbanked and 18.7 percent of households were underbanked. However, the FDIC uses a broader underbanked definition, which includes international remittances and rent-to-own services as alternative financial services. See Federal Deposit Insurance Corporation, 2017 FDIC National Survey of Unbanked and Underbanked Households(Washington: Federal Deposit Insurance Corporation, October 2018), https://www.economicinclusion.gov/surveys/2017household/. Return to text
15. In a regression including marital status, age, education, income, employment status, region, and urban/rural residence, the difference in confidence between black and white adults narrows but remains significant. The gap between Hispanics and white adults is largely accounted for by these demographic factors. Return to text