- Moral conflicts. Most banks use your money for purposes that many people consider evil, so choosing to not give them your money is a rational choice.
- Lack of trust. Many banks over the last century have run out of money and been unable to honour withdrawal demands/requests. It's reasonable and logical not to trust them to keep your money and give it to you when you ask.
- Inconvenience. If you don't have very much money, having a bank account is a drain on your resources (fees, mostly) and your money is not immediately accessible.
There are plenty of other reasons, too. Running away from people you owe money to is certainly not the only rational reason for not having a bank account.
The inconvenience argument might be true for some[1] people in some countries but is a complete non-starter in my country where retail bank accounts with a positive balance usually are usually fee-free, as are most forms of transfer between domestic bank accounts, most debit card payments and cash withdrawals from most ATMs. It's hideously inconvenient not to take advantage of all that ([1] I understand that somewhere like the US depositors' costs from basic use of the banking system might sometimes be even higher than those levied by non-bank financial service providers they use instead...)
Granted, the moral conflicts argument has a bit more standing, but arguably only if you apply the same standard of scrutiny to other entities you choose to purchase goods and services from (most of whom will deposit your payment in a bank account...). It's not like there aren't banking service providers that have at least seen the marketing benefits of an ethical stance
Pretty much every developed country has spoken in the last few years of forcing depositors to take losses in the event of bank failures, and some have actually done it. Governmental deposit insurance SHOULD be inviolate, but that isn't the way the regulators are talking and acting.
Meanwhile, how many HNers are currently praying that Mt. Gox will stay liquid long enough to give them back their money?
But not penalty free. A few months ago, I clicked a form twice in my online brokerage and accidentally doubled a ACH transfer from my bank account. Since I was transferring more than half, the double transaction was too much. My bank hit me with a $25 fee.
No big deal to me— but to many poor people a $25 fee could start a spiral of overdrafts which would leave them hopelessly short money. To someone in that situation an arrangement which charged them 5% per transaction would be preferable to one which carried any risk at all of an overdraft spiral of doom.
I don't recall the exact date, but within the last two weeks Marketplace on NPR had an interview with several financial executives about the 2008 collapse. One of the execs had his wife run to the ATM to withdraw the maximum limit ($500) when money market funds broke the buck, and even GE couldn't get short term funding. He was seriously concerned about the ability to get to his own funds.
Being in a developed country doesn't mean your money doesn't have any risk when tied up at an institution.
Within the last century, yes, but quite far back within it: the last time anyone with modest amounts of money in the U.S. lost deposits in a bank failure was 1933, the year the FDIC was created.
You can still lose money in a bank failure if your deposits are above the FDIC insurance limits, but poor people by definition would not have that much money, so it wouldn't explain their choice not to use banks.
Also, if you chose to forgo paper statements to "save the environment" (and reduce the bank's costs), and you were lax in downloading your statements, it would probably take even longer to be reimbursed.
Running away from creditors is not a valid reason. They can sue you. They can't directly take your money.
Since they are making decisions that you don't think are rational ("it's probably rare for the optimal solution ..."), you conclude that the reason is that the poor people are less well-informed.
This makes sense, so long as everyone has equal access to the same services, or at least access to the same services you do, and that there is competition among those services.
However, as the author points out, the poor areas are under-served in terms of banking choices, and banks use "private databases like ChexSystems that currently keep more than a million low income Americans from being able to open accounts."
Because of the obvious market inequality, you cannot conclude as you did that the people who use RiteCheck are making either an irrational decision or un-informed decisions.
What I was saying in the parent comment is that overdraft fees are a perfectly rational motivation to avoid major banks.
I personally bank with both Wells Fargo and Bank of America (for convenience, and because several family members that are international do the same; gotta have that free transfer service). I am close with a few people that have foregone banking, and paid out of pocket to have their paychecks cashed where ever they can. As far as I can understand, this is a rational decision if your income does not provide the ability to meet a minimum monthly balance of about $100 of 'slack'. If you've ever worked a menial job for a regular period, I'm sure you'll understand.
If your monthly balance variance is < ONE PAYCHECK +/- $50, a $35 overdraft fees represent a significant percentage of your income.
These overdraft fees are a profit center for banks. Even if there are options to mitigate them, what motivation do the poor have to pursue them? The burden of proof of utility is on the banks, as far as the poor are concerned. If it seems to be more convenient or cheaper to operate without them, people will. This may be partly due to ignorance, but for the most part, it is because there are small inherent costs associated with a bank account that the middle class doesn't seem to recognize.
You CAN operate with less expense with cashed checks and payment cards than you can with a bank account and a debit card. Hobos and junkies would not do so if it were not the case. Hard living makes people rational like a motherf*er. You may forego some potential interest incomes, bank protections, and countless conveniences associated with using a bank account, but when it comes down to brass tax, it just costs less.
While studying, I was quite poor, and rarely had any reserve cash on me. In an effort to secure me against emergencies, I borrowed a small amount from a friend and put it in my bank account. It was not to be used except if the house burned down and I needed a motel or if some other unlikely event occur.
After my studies was done, I was unemployed and thus went and sought some social security money to pay rent with. When the first check came in, it was reduced with the amount I had in the bank.
TLD: paper trails are contextless, and do not always paint the correct picture. Giving the state this information can be quite costly on a personal level.
