Board of Governors of the Federal Reserve System

Banking and Credit

Access to bank accounts edged up in 2017 to include almost 95 percent of adults, continuing the upward trend in previous years. The rate of self-reported credit denial has also declined substantially over the past five years, although, increasingly, applicants who are approved for credit report receiving a smaller amount than requested. Notable gaps in access to these basic financial services still exist among minorities and those with low income.

Unbanked and Underbanked

About 5 percent of adults in 2017--or 13 million people--do not have a checking, savings, or
money market account (often referred to as the "unbanked"). The fraction who are unbanked is down from 7 percent in 2016 and 8 percent in 2015.³⁰ Half of the unbanked used some form of alternative financial service during 2017--such as a check cashing service, money order, pawn shop loan, auto title loan, paycheck advance, or payday loan. In addition, 18 percent of adults are "underbanked": they have a bank account but also used an alternative financial service product (figure 15). The fraction who are underbanked is down from 19 percent in 2016 and 21 percent in 2015. The remaining three-quarters 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. Just 1 percent of those with incomes over $40,000 are unbanked, versus one in eight with incomes under that threshold. Similarly, 11 percent of blacks and Hispanics are unbanked, versus 3 percent of whites (table 15).

Table 15. Banking status (by family income, education, and race/ethnicity)

Use of alternative financial services reflects a decision, by choice or necessity, to conduct certain financial transactions through providers other than traditional banks and credit unions. The vast majority (74 percent) of people using alternative financial services sent or received a money order (table 16). One-third used a check cashing service, and 26 percent borrowed money with an alternative financial service product, including pawn shop loans, payday loans, auto title loans, paycheck advances, and tax refund anticipation loans.

Table 16. Forms of alternative financial services used

Credit Outcomes

During 2017, 4 in 10 adults applied for some type of credit, which is similar to the share who did so during 2016 and up from the 3 in 10 who applied for credit during 2013 when the survey began. The most common credit applications were for credit cards and auto loans (figure 16).

One-quarter of those who applied for credit were denied at least once in the past year, and 32 percent were either denied or offered less credit than they requested. The rate of denials has declined relative to five years ago, although this has been counterbalanced by an increase in the share offered less credit than requested (table 17).

Table 17. Experiences of adults who applied for credit (by survey year)

The rate at which individuals are denied or offered less credit than requested differs by the type of credit application. Thirty-four percent of credit card applicants experienced at least one of these adverse events versus 16 percent of auto loan applicants (figure 17).

The rate of denial also differs by the family income of the applicant 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, 39 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 (table 18).

Table 18. Credit applicants with adverse credit outcomes (by family income and race/ethnicity)

Credit Perceptions

One in nine adults put off at least one credit application because they thought that their credit application would be denied. This includes 7 percent who applied for some credit, but opted against submitting other applications because they expected to be denied, and 4 percent who desired credit but did not apply at all for fear of denial. Thus, negative perceptions may be an additional barrier to credit.

Although some people are forgoing credit applications because they expect a denial, most adults (78 percent) are 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 19). Additionally, credit perceptions differ by race and ethnicity, although these gaps may be at least partially attributable to other socioeconomic factors that also vary by race.³¹ The patterns in 2017 are consistent with those seen in recent years.

Table 19. Confidence that a credit card application would be approved (by family income and race/ethnicity)

Credit Cards

Overall, 83 percent of 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 20). These credit cards can be used as a convenient way to pay for purchases or as a way to borrow money by carrying balances from one month to the next.

Among those with a credit card, about half always or almost always paid their bill in full each month, while 2 in 10 did so some of the time and slightly over one-fourth carried a balance most of the time (figure 18). Twenty-eight percent of those with a credit card paid only the minimum on their bill at least some of the time. The frequency of regular borrowing with credit cards during 2017 is similar to 2016.

Table 20. Has at least one credit card (by family income, education, and race/ethnicity)

Financial Management

Individuals use a wide range of approaches to manage their finances. Slightly over 7 in 10 adults keep track of their spending and over half follow a budget or spending plan. Also common is the use of technology to track or automate financial management. For example, 62 percent of adults use auto-pay for some bills; 52 percent get electronic account alerts; and 46 percent use automatic saving (table 21). While the frequency of budgeting is similar by income, lower-income individuals are less likely to use automatic bill payments or automatic savings withdrawals.

Table 21. Financial management techniques

Younger adults are more likely to use newer technology in their financial management than older adults. Among those who track their spending or follow a budget, two-thirds of adults ages 18 to 29 use an electronic tool, such as a spreadsheet or mobile app, while 61 percent over age 60 use a paper-based tool, such as checkbook (table 22).³²

Table 22. Method of budgeting or tracking spending (by age)

References

 30. The most recent FDIC National Survey of Unbanked and Underbanked Households in 2015 observed that a similar 7 percent of households were unbanked and 20 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, 2015 FDIC National Survey of Unbanked and Underbanked Households(Washington: Federal Deposit Insurance Corporation, October 2016), www.economicinclusion.gov/surveys/2015household/. Return to text

 31. In a regression controlling for marital status, age, education, income, employment status, region, and urban/rural residence, the difference in confidence between black and white adults and between Hispanic and white adults remains significant. Return to text

 32. New technologies are also used for interactions with banks and credit unions. For example, young adults are more likely than older individuals to use mobile banking and are less likely to have spoken with a bank teller in the past year. For additional discussion of mobile banking see Ellen Merry, "Mobile Banking: A Closer Look at Survey Measures," Finance and Economics Discussion Series Notes (Washington: Board of Governors of the Federal Reserve System, March 27, 2018). Return to text