Why Are Some People Hesitant to Use Banks?

Why Are Some People Hesitant to Use Banks?

A 2015 FIC survey revealed that 7 percent of American households are “unbanked,” meaning that they did not have any sort of account at a traditional, insured financial institution. Such people often turn to other resources, like payday loans, for financial services.

However, this approach to saving, investing, and taking out loans isn’t advantageous in the long term. Without a proper bank account, it’s nearly impossible to make the kind of investments that yield the greatest rewards. In fact, relying on nonbank institutions for financial services loses customers money. Check cashing establishments impose heavy transaction or transfer fees, and payday loans carry the threat of overdraft fees. Many who use them often find themselves in an almost constant state of debt.

However, making the switch from these financial services can be possible—but it begins with a more thorough understanding of why people fear traditional banking in the first place. Here are some common reasons why customers choose not to maintain an account at a traditional financial institution.


Again, the fees associated with check cashing businesses and payday loans are often substantially more detrimental to customers than the fees they would incur if they used banks instead. However, many feel that the technical language banks use when describing fees, penalties, and similar details can be overwhelming and confusing. Even if comprehension is not a problem, these details are easy to miss in longer documents.

Check cashing businesses, on the other hand, tend to communicate this information in clear language. Rather than obfuscating it like the fine print of an advertisement, they display this info in vivid graphics on their storefront windows or near the counter.

While some unbanked people have never had an account with an insured institution, others have actually left banks after falling into major debt due to their inability to fully understand the terms of an account or loan. As far as they are concerned, check cashing shops and payday loans are more transparent than banks. As such, it’s easy to see why they might come to the conclusion that using these businesses is a far less risky proposition than returning to the bank that put them in debt in the first place.



The above point speaks to a bigger issue: public trust in banks is on the decline. According to Gallup, as of 2016, only 11 percent of polled Americans reported that they had a “great deal” of trust in banks, and only 16 percent claimed to have “quite a lot” of trust.

If a person has had a negative experience with a bank, then their faith in these institutions may diminish. But a personal negative experience with a bank isn’t always the reason behind customer misgivings. Banking scandals in the media have instilled a sense of mistrust in many people. They’re no longer certain if banks truly have their best interests at heart. Thus, they look to alternate options for their financial services.

It’s worth noting that the FDIC survey cited earlier indicates that, along with the 7 percent of American households that are unbanked, 19.9 percent are “underbanked.” Such households do have some form of traditional bank account, but also use alternative financial services. Sometimes, they only occasionally turn to payday loans to cover sudden emergency expenses. In other instances, these alternative services are a regular part of their financial habits.

This trend could suggest that more people are considering closing their bank accounts but are exploring other options first. Waning trust may be to blame.

Lack of access

Not all people are given the opportunity to learn about creating and maintaining a bank account. Those who have never been supplied with the proper knowledge or resources may simply be too intimidated by the process to start an account, and given the plain language that payday loans and check cashing establishments use, it’s easy to see why many go this route.

That’s why education is one of the best means of serving the unbanked and underbanked populations. This doesn’t just mean including this information in high school curricula. It also means finding ways to teach those who are already well into their adult lives. That may take the form of seminars at local libraries or continuing education courses at community colleges.

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