Understanding the underbanked
Hispanic and Black households are four to five times more likely than white households to be unbanked or underbanked, which means they use less or no traditional financial services like credit cards and bank accounts.
Those who are underbanked often turn to alternative methods of financing like payday loans and pawn shops, according to Sean Snaith, University of Central Florida’s Institute for Economic Forecasting Director.
He said this tends to be people with low incomes, people living in more rural areas, and new immigrants with a language barrier or who lack faith in the financial system.
“They don't want to give their money to a bank. They don't feel that it's safe, maybe because of experiences from their country of origin, but for whatever reason, they're just not willing to hand an establishment their money,” said Snaith.
Snaith said some people are suspicious of large financial organizations due to a previous bad experience or a lack of understanding of how the system works.
Alex DeJesus, senior Vice President of Member Experience at Addition Financial, agrees that in minority communities, there is often a fear of banking, which is why his organization targets school age kids with financial literacy programs.
“Sometimes in our cultural homes, you have abuelita, you have tios, you have uncles,” he said. “So they're able to pass on that knowledge because finances can be intimidating.”
Costs and consequences
Gaps in financial services persist as the Federal Reserve reports the rate of unbanked adults remained the same between 2022 and 2023.
Being underbanked or unbanked, can make financial transactions more expensive, according to Sean Snaith.
“If you're turning to a check cashing place or a payday loan type place, you're going to be paying considerable fees well above what would be the case in a more traditional banking situation,” he said. “And so the consequences are, it's hard to get out from under the low income or the poverty that you're afflicted by.”
Snaith said the consequences can have ripple effects on our economy when people don’t have access to the same saving and investment channels, making it difficult to build wealth over time.
“When you get older and you're not working anymore, then sort of the community burden is we've got somebody that's more in need because they were not able to access the banking system, and thus requires more social services and things like that that are publicly funded,” he said.
Snaith adds that the inability to build wealth also makes it harder to purchase a home.
“If you don't have a sort of financial record and credit history, it's going to be very difficult to become a homeowner,” he said.
Increasing financial literacy
Underbanked and unbanked communities in Central Florida, shows that there is an ongoing issue with financial literacy, according to Sean Snaith.
Alex DeJesus recognized an increase in the Hispanic Population in Central Florida, and as someone who faced financial literacy problems growing up in a Latino household, he knew where Addition Financial's efforts need to go.
He said the local credit union has been putting efforts toward financial literacy education in schools across Central Florida.
“We have our high school branches, which I'm passionate about, where we have branches inside of our high schools. We just opened up a new one in Osceola County,” he said. “I love it because it also helps with generational wealth.”
In addition, the credit union has partnerships with Orange County Schools, the Early Learning Coalition of Orange County, and Junior Achievement of Central Florida.
DeJesus says they have also put an effort into marketing information in multiple languages and hiring bilingual employees.
“So that there's a level of comfort of understanding that you can come to our branches, you can get someone who speaks your language, understands your culture,” he said. “And we can help ease some of that tension of the overwhelming fear of dealing with money, loans, purchasing a home and things like that.”
As work continues in Osceola County, DeJesus said they’re looking to expand efforts in Haines City and Pine Hills.
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