Unbanked? 5 Ways to Survive in a Cash-Free Economy
Did you know, there are 25 million unbanked and underbanked households in the United States? That figure includes the 6 percent of adults who don’t have a bank account - a community that is overwhelmingly Black, Latino, Native and/or undocumented.
The end result is some families are left behind while others advance into a cash-free future increasingly dominated by contactless payments.
In recent articles, Stephanie McMorran talked about how hard it is to get by when Black and Brown working class neighborhoods are being gutted by gentrification, cash-free economy, hostile architecture and the destruction of third places. And some readers were less than empathetic. Times change, they need to change too. Do you want us to carry bags of gold around? We don’t keep cash onsite because these neighborhoods (implied: people) are dangerous.
So many readers felt annoyed at people who use cash – which is interesting, given that the number one reason households give for not having a bank account is they don’t have enough money to meet minimum balance requirements. Isn’t it so annoying when poor people are poor. My god.
Here’s a thought: So much of our future is determined by the zip code we’re born into. And for unbanked households in working class neighborhoods, it can feel harder and harder to get by in an environment that is increasingly designed to uplift white, middle-class transplants while denying everyone else the right to live comfortably or meet basic needs.
It can be difficult to empathize with a reality you’ve never had to live – but we’re going to try. So, for educational purposes only: here are five ways to survive in a cash-free economy.
Disclaimer: We are an outdoor blog and this is not financial advice.
Photo credit: iStock
1. Payday loans
“There are more payday lenders in the U.S. than McDonald’s or Starbucks” declared a 2014 NBC News article.
So what exactly are payday loan centers?
They are predatory lenders that charge up to 800% interest.
These are usually small loans – $1,000 or less. However, the catch is you can’t make partial payments. You have to repay the entire loan in full, plus fees – typically within 30 days.
Most borrowers can’t pay, so they find themselves caught in a cycle of debt – taking out another payday loan to cover the cost of the original.
“The typical borrower takes out eight payday loans”, according to 2019 research from the U.S. Census Bureau.
Wait? But who falls for this bullshit?
People who have no other option. Please pay attention.
Payday loan centers are a lifeline for “financially struggling” working class residents with low income, fixed income or no income who don’t have access to credit. They’re also a trap.
You don’t have to worry about this because you have a well-paying job – for now – and a safety net. Your parents would happily welcome you back home – and they wouldn’t charge rent either. But this could be your future.
Or maybe not.
That’s because payday loan centers primarily target African Americans and Latinos, who historically have been excluded from traditional banks. The latter have a long history of racially discriminatory lending practices.
Did you know:
Nearly 1 in 4 Black households (23.8%) are underbanked and 10.6% are unbanked. They are 2x more likely than White households to use payday loans and other cash loans.
Over 1 in 5 Latino households (21.7%) are underbanked and 9.5% are unbanked. They are 1.8x more likely than White households to use payday loans and other types of cash loans.
Over 1 in 10 Native households (10.75%) are underbanked and 12.2% are unbanked. They are 2.3x more likely than White households to use payday loans and other cash loans.
A study by University of Houston Law confirmed what we already know to be true: “advertising works, and African Americans and Latinos are more likely than white customers to use high-cost credit”.
They also determined that nearly one-third of traditional bank websites used zero African-American models in online advertising and 75% of those surveyed used zero Hispanic/Latino models.
That’s not an oversight, that’s by design.
Here’s the thing: advertising affects consumer choice. If you don’t see yourself represented, you might not consider traditional banking as an option. You might assume – correctly or incorrectly – that they don’t want you as a customer.
But let’s keep it a buck.
While racially-skewed advertising does shape “societal norms and expectations of where people fit” – what the study calls a “self-sorting effect”; it isn’t the whole story.
Black and Latino working class families use payday loans because they need cash now; because they don’t have safety nets; because they were born into generational poverty; because every time they reach a milestone – graduation, a new job, a promotion – they become responsible for supporting more family members. They are doing the most with the least amount of help. Unlike you.
Not everyone has a custodial investment account, a 529, or support with a down payment on a house. As a result, people make difficult choices – and that includes payday loans with 800% APR.
Just to be clear, if your credit card had an 800% interest rate, you wouldn’t be able to pay that back either. So don’t judge.
“...the number one reason households give for not having a bank account is they don’t have enough money to meet minimum balance requirements.”
Okay, so what are states doing about this horrible situation?
According to a 2023 report from Pew Charitable Trusts, 18 states and D.C. now have laws that restrict payday loan centers.
Don’t cheer just yet. Unless they also pass laws requiring traditional banks to expand small loan options, remove minimum balance requirements and lower fees, this is a net negative.
Meanwhile the federal government is not super helpful here. The Consumer Financial Protection Bureau (CFPB) tried to regulate payday loans in 2017 and then changed its mind in 2020. Why? Pew Charitable Trusts claims that, “No federal regulator has authority over key pricing and lending terms that are essential to proper reform—but state lawmakers do.”
Some states are working on regulating payday loan centers by capping fees, and interest rates so “consumers with damaged credit histories still have access to small loans but on much better terms”.
So maybe there’s hope. Payday loan centers are a lifeline for working-class neighborhoods. The goal isn’t to get rid of them all but to get better terms for folks with the greatest need and least support. In the meantime, there’s always another option.
Photo credit: iStock
2. Auto Title Loans
Yes, it’s exactly what it sounds like.
Auto title loans are high-cost small loans that use your vehicle as collateral with “fees and interest as high as 300% annual percentage rate (APR)”. That means, if you can’t pay up, they will repossess your car. They don’t have to go through the courts and you don’t get due process. They have your title, or spare set of keys, or use an ignition kill switch.
Scary.
Title loan centers aren’t worried about your bad credit history. Why would they? The fees will be worth more than the initial value of the loan – and so is your car. Imagine having a $30,000 car repossessed after defaulting on a title loan worth $1,000 or less. Your inability to pay is a win-win for them.
And yes, title loans can “roll over”, just like payday loans. These are short term loans that generally have to be repaid in full within 15 or 30 days – no partial payments. Yet, the average title loan – $1,000 plus $250 in monthly interest, is half of the borrower’s monthly income! And even though title loans are supposed to be used for emergencies, people use them to pay rent or utility bills – in other words, just to get by.
Two-thirds of title loan borrowers have late payments and half of all respondents in a 2024 survey said their loan rolled over at least once. Forty percent either lost their vehicle, had their wages garnished or were sued. A separate CFPB study found that 1 in 5 title loan borrowers had their vehicle repossessed.
Once your vehicle is gone, how will you get to work, doctor’s appointments, or to the grocery store?
The sad truth is that title loans are a lifeline for Black and Brown working class residents — they’re also a trap, creating a cycle of debt. However, “[w]hen you’re desperate for cash and have run out of options, you might be willing to risk your car to buy yourself some time,” according to NBC News Consumer.
And if you can’t get credit anywhere else, do you have another option? As bad as they are, title loans offer fast cash with no credit check. If you’re convinced you have nowhere else to turn, it’s easy to see why you might apply for one.
So what are states and the federal government doing about this?
Title loans are banned in at least 20 states and in D.C., but they’re still occurring – via loopholes, like online lending, and outright illegal lending.
Well, if you can’t get a title loan in your state, you could always pawn a family heirloom.
Photo credit: iStock
3. Pawn shop loans
Pawn shop loans are another type of alternative financial service, falling outside of traditional banks.
All you need is something of value, like jewelry, to get started. In exchange for the item, the pawn shop will offer you fast cash – “usually no more than 60% of the item’s resale value” according to Business Insider. They will also hold the item as collateral for the next 30 days until you repay the loan in full with interest. If you don’t repay, they keep the item.
Do they check your credit history? No.
Can you build credit from pawn shop loans? Also no.
Do most borrowers repay their loans on time? No.
Just like payday and title loans, pawn shop loans create a cycle of debt.
A 2019 CFPB survey showed that 3 out of 4 pawn loan borrowers still owed money six months later, indicating “repeat borrowing or loan rollovers.”
Not great.
That’s in part because borrowers get slammed with hidden “appraisal,” “interest,” “storage” or “setup” fees after being misled by “deceptively low annual percentage rates”.
But loan rollovers also occur because they’re not being used for emergencies – they’re being used for basic needs: food, rent, utilities – by mostly middle-aged, low-income, Black and Hispanic women, who don’t have access to other forms of credit – and not for lack of trying!
Nearly 60 percent have been turned away by traditional lenders.
If you don’t live in working class neighborhoods with the familiar neon signs of pawn shops, payday loan and title loan centers, it’s easy to not care that so many Black and Latina mothers and grandmothers lack better options. Many find themselves trapped in cycles of debt while attempting to keep the lights on and the rent paid.
But this is so far removed from your life experience; we get that you don’t care. Let’s talk about something you can relate to.
We know that 8% of U.S. adults use payday, title and pawn shop loans. Well what about mobile payment apps?
Venmo and parent company PayPal are helping unbanked families access financial tools and services outside of traditional banks. Photo credit: iStock
4. Mobile payment apps
Wait, what’s that? No bank account? No problem? Use a peer-to-peer (P2P) mobile payment app, like Cash App.
It’s true, payment apps are a lifesaver for unbanked households. Instead of a hour-long bus ride to pay the electric bill once a month, they can pay online!
Some mobile payment apps do require a linked bank account, like Zelle, Google Pay and Apple Pay. Others don’t – like Cash App, Venmo, PayPal and Chime. Or they allow you to transfer funds to prepaid debit cards – another win for unbanked households.
So, if you can afford a smartphone and a data plan, you can set up direct deposit of your paycheck, retirement, Social Security, food assistance or government benefits into your payment app — no bank account required. You can also use your payment app to pay bills and “make purchases in person or online”.
If you’re not absolutely sure you can pay your cell phone bill each month, this is not a good strategy. Cash is better.
I can’t really overstate how important this is. P2P mobile payment apps offer a lot of the same tools and services as bank accounts – without the fees or minimum balance requirements. This is so pivotal, that I’m about to quote Cash App COO Owen Jennings, who pointed out the obvious in a recent white paper: we live in an “economic system that works for some but not for all.”
And while some of y’all are cracking jokes at the expense of low-income families who don’t have access to short term loans, credit, or fee-free banking, Cash App and other fintech companies are creating solutions for people who lose out under the current system – by allowing them to access their money faster, track their spending, borrow from peers and build savings.
So there’s no catch?
Well, there’s always a catch. If you’ve read this far, you’ve surely realized that!
Peer-to-peer payment apps are rife with scams. And despite being having the look and feel of a bank account - they aren’t. Most won’t issue refunds if you send money by mistake or fall victim to fraud. And there’s one other major thing you should know.
Your Venmo balance isn’t FDIC-insured. Neither is your PayPal wallet. So if the company goes bankrupt, you’re on your own.
FDIC insurance applies to chartered banks – not financial tech (fintech) and protects your money up to $250,000 in case of bank failure.
“Over 1 in 5 Latino households (21.7%) are underbanked...”
Are there exceptions? Sure, but it’s hard to know if they apply to you. For example, your Cash App wallet isn’t FDIC insured but your Cash App prepaid Visa debit card is (through a partner bank). And while most fintech “wallets” aren’t covered, some are – like Chime and Acorns – due to deposits being routed to chartered banks.
Generally, if you open a debit card through a payment app, that money is covered under “pass-through deposit insurance coverage.” But if you’re just using a payment app “wallet”for transactions, you may be assuming more risk.
But risk is relative. If you don’t have $250,000 to lose (most of us), maybe it doesn’t matter so much. But this isn’t just theoretical. When fintech middleman Synapse declared bankruptcy last year, 100,000 Yotta customers lost access to $109 million in deposits. Some app users lost their entire life savings.
You’re starting to see the pattern, right? Being shut out of traditional financial institutions leaves few good options. There are no safe survival strategies. These are all high-risk.
So, who exactly is using payments apps for their “primary checking account”? The answer is “[m]ore than a third of Gen Z and millennials”. Finally, something you have in common with unbanked families in working class neighborhoods.
But let’s explore one final survival strategy.
EBT for SNAP, WIC and other government benefits is an example of a reloadable prepaid card. Today, offerings like Western Union prepaid Visa card and the Walmart prepaid Money Card deliver convenience, faster access to cash and the ability to make purchases in-person or online for unbanked families. Photo credit: iStock
5. Prepaid Cards
Prepaid cards are reloadable debit cards that can be use to withdraw cash, make online and in-person purchases, send and receive money and pay bills.
Don’t have a bank account? No problem. You may be able to direct deposit your paycheck, tax refund, government benefits or retirement directly onto your prepaid card. Some will also allow you to deposit paper checks via mobile app.
It’s banking without banking – all without a credit check, minimum balance requirement or overdraft fees associated with a bank account.
Some prepaid cards, like the Western Union Prepaid Visa Card, can even be linked to mobile payment apps, like Apple Pay or Google Wallet.
They’re a great way for unbanked households to conduct financial transactions. And because prepaid cards don’t show up on your credit report and aren’t linked to a bank account, it’s harder for creditors to find them and garnish funds. That in itself can be an advantage for unbanked families with high consumer, student loan or medical debt.
Wait, these sound amazing! So, what are the disadvantages?
It’s not a credit card so you won’t be building or rebuilding your credit.
You won’t earn interest.
Not all stores accept prepaid debit cards as a form of payment.
There may be hidden fees associated with “ATM withdrawals, card replacement, direct deposit, inactivity, card cancellation, paper statements, and card reloading.” It’s extremely important to do research ahead of time.
“Nearly 1 in 4 Black households (23.8%) are underbanked...”
According to a recent FDIC report, over 1 in 5 unbanked households use prepaid debit cards compared to 1 in 20 banked households. So this is definitely a popular survival tactic.
What do they use them for?
To “pay bills”, “save or keep money safe”, “send or receive money” and “make purchases”.
However, they aren’t used equally by every community.
Black households are twice as likely as white households to use prepaid cards (and twice as likely to not have access to credit).
Hispanic/Latino households and Native households use prepaid cards at the same rate as white households (even though they are twice as likely as white households to not have access to credit).
Conclusion
I hope you learned a few things about the reality of being unbanked or underbanked in the U.S. There are no easy options and people aren’t choosing to be cash-only to annoy you. It has nothing to do with you and everything to do with zip code they were born into and the structural inequality their families face – in some cases for generations.
I can’t teach you how to empathize with someone who has less privilege than you. That’s something you have to learn for yourself. But I hope knowing a little bit more about the obstacles that many Black and Brown families face will help you along your way.
That’s it, folks. Thanks for reading!
Here’s a thought: So much of our future is determined by the zip code we’re born into. And for unbanked households in working class neighborhoods, it can feel harder and harder to get by in an environment that is increasingly designed to uplift middle-class transplants while denying everyone else the right to live comfortably or meet basic needs.