amex_infographic_1_large cropDid you know that nearly 70 million Americans are underserved by traditional financial services?

According to the 2011 National Survey of Unbanked and Underbanked Households by the FDIC, “8.2% of all households in the U.S., 17 million adults, are unbanked; and 20% of all households, 51 million adults, are underbanked.”

To be “unbanked” is to not have a checking or savings account. Whereas, to be “underbanked” is having a checking or savings account but still relying on alternative financial services such as check-cashing, prepaid credit cards and, sometimes, pawn shops.

Being underserved can be very expensive.

In 2012, Americans who are unbanked or underbanked spent $89 Billion in fees and interest across various services including $21 Billion on “Very Short Term Credit” products (products with credit terms of one month or less).

A new documentary -“Spent: Looking for Change” – has been released to highlight this issue. Sponsored by American Express and narrated by Tyler Perry, who has himself experienced “how expensive it is to not be a part of the mainstream financial system”, the documentary follows four Americans and their families as they cope with the costs of underserved.

“The picture of the financially unstable is the picture of you and me but for a couple of breaks” – Jonathan Mintz, CEO, Cities for Financial Empowerment Fund

Alex and Melissa: “Our reality changed overnight”

When they started their family they had two incomes – paying for bills was no problem. Not long after their son was diagnosed with autism Alex was diagnosed with Multiple Sclerosis. Alex subsequently had to give up his job. With no savings or plan for an emergency paying for bills became a problem. Overdraft protection fees began to build up eating up the money they did have.

Alex and Melissa now live exclusively on cash to avoid fees. On payday they have to get their checks cashed and then travel to various outlets to get their bills paid on time. This takes a lot of time in addition to incurring significant gas cost.

In a bid to be responsible the couple has avoided credit in order to avoid debt. However, if someone never takes out a line of credit that person cannot build a credit score. Many of the financial transactions people undertake day-to-day – e.g. rent payments – are not tracked by the credit scoring agencies. This means they are invisible to the credit score companies and unable to access loans for car loans and mortgages.

Justin: “People often judge me on the choices I’ve made not knowing the options I’ve had”

Justin experienced an extremely poor upbringing living on welfare and food stamps. He left home at the age of 16 and had to support himself. He relied on credit cards admitting that he was too young to fully appreciate the situation. He stopped paying his debt and is now suffering the consequences.

Justin now runs a film production company catering to corporate clients. He makes a good living and business is good. However, once he gets the checks from his clients he has to “leave the lustre and grandeur of downtown and…go uptown right into the check cashing place.”

As money becomes more digital, living on cash gets more challenging. Justin has to turn his checks into cash and his cash into a prepaid card. For each transaction for which he uses the card he has to pay a fee. Based on the statistics, over the course of his career Justin may spend up to $40,000 turning checks into cash and another $30,000 on transaction fees using prepaid cards.

Tiffany: “Life was good. I was living the American dream”

Tiffany is a former nurse whose mother instilled in her the values of paying what you owe and saving. She put money away in retirement accounts and built a nest egg for her daughter’s future. She also put her daughter in private school because she didn’t want to compromise on education. Tiffany says, “life was good. I was living the American dream.”

And then her mom was diagnosed with cancer. Tiffany gave up her job to care for her mother. She believed she would be able to get back into the workforce after a year and would live on savings in the interim. Unfortunately the financial crisis hit and Tiffany found herself using up her entire savings and increasingly relying on check cashing services and payday loans.

Tiffany took out a title loan of $5,000 for which her car was the collateral. She paid off her bills and rent but when she was in Dallas working on a job a payment became due. Unable to make a payment at a local affiliated branch or make a partial payment, Tiffany lost her vehicle.  She then had to take her daughter out of private school.

Debbie: “Most people live paycheck to paycheck, I live handbag to handbag.”

Having migrated from Argentina at 14, Debbie was the first in her family to graduate from college. Debbie put herself through college taking out student loans to support her education. She subsequently launched her own business making and selling leather handbags.

Her student loans weakened her credit and Debbie is now struggling to scale her business while paying off her student loan debt of almost $100,000. As more boutiques sign-up to sell her bags she has to make more bags each month. While this may sound positive, without a line of credit Debbie is unable to afford the supplies needed to fulfil her growing orders.

Debbie is trying to build her credit but was only able to obtain a prepaid card with a limit of just $150. Debbie has had to take a second job to fund her business.

There is some hope – there are companies and organizations trying to build solutions for the 70 million Americans who are impacted by these issues, such as peer-to-peer lending facilities and alternative credit scoring. American Express has also launched a Financial Inclusion Initiative “to invest in early-stage startups leveraging technology to help improve financial options available to those who are financially underserved.”

If you are affected by any of the issues in this documentary, or would like to know how to get involved in helping to make the financial system more inclusive for all, please visit www.spentmovie.com.

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