...an account are related to income, race/ethnicity, marital status/gender, planning horizon, education, previous account experience, and credit history. We suggest potential responses for community educators, firms, and policy makers.

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Conventional wisdom holds that having a bank account is a first step toward building a financial identity, which leads to further access to financial products and services and thence to advances in family well-being, stability, and security, and finally to community security and economic development. Yet, 9.7 million U.S. households (about 9.1%) remain without any bank account and 12.7% have no checking account, the basic transaction account for most U.S. families (Aizcorbe, Kennickell, and Moore 2003). While a substantial and growing body of literature has developed on the determinants of holding a bank account, modeled as a "have/don't have" decision, there has been relatively little analysis of the motivations behind being unbanked.

Our reason for wanting to understand these motivations stems from our desire to design programs and policies to respond to these households in meaningful ways. Because there are a variety of reasons for not having an account, there need to be a variety of responses if we are to bring people into the financial mainstream. Community educators want to know which motives may be addressed by an educational response; financial institutions want to know which motives may be addressed through account features and product design; and policy makers want to know which motives may need to be addressed through public policy.

Thus, the goals of this paper are to explore the reasons and motivations households give for not having a bank account (specifically, a checking account), to examine whether these reasons have changed over time, and to identify which motives could be addressed via education, product design, and public policy responses to bring more households into the mainstream financial sector.

BACKGROUND

As indicated above, there has been substantial work looking at who does and does not have a bank account (see Caskey 1994, 1997a, 1997b, 2001 ; Hogarth, Anguelov, and Lee 2001; Hogarth and O'Donnell 1997, 1999, 2000; Hungerford 2000; Rhine, Toussaint, Hogarth, and Greene 2001; Stegman and Faris 2001). Determinants have included variables related to income, net worth, home ownership status, race and ethnicity, age, education, employment status, vehicle ownership, and credit history.

The literature on why some people do not have an account is somewhat sparse. One of the first studies on why people do not have checking accounts was a qualitative analysis conducted by Schlax and Levy in 1971. Through a series of focus groups and 214 individual personal interviews in urban settings (Atlanta, Buffalo, Charlotte, Chicago, New York, San Francisco, and Toronto), they found that reasons for not having a checking account were primarily psychological in nature. Consumers cited their money management habits and preferences for having "money in hand"; perceived loss of financial control; lack of competence in handling the bookkeeping part of having an account; having a viable alternative to a checking account; and a basic misunderstanding of checking accounts ("they are for organizations, executives, people with a lot of bills" (Schlax and Levy 1971, p. 1-10)). Most of the unbanked households in this study had low incomes.

Andreasen (1975) and Caplovitz (1967) posited that lower-income consumers were disadvantaged not only because of their low incomes but also because they tended to be minority, often had limited language ability, were older, and tended to patronize limited markets. Thus, in addition to the psychological reasons cited by Schlax and Levy, there may also be reasons related to the economics of having an account as well as the educational skills needed to choose and manage the account.

More recent surveys and studies have included descriptive information on reasons for not having a bank account (see, for example, Aizcorbe, Kennickell, and Moore 2003; Caskey 1997a; Dove Associates 1999; Dunham 2001; Hogarth and O'Donnell 1997; U.S. Treasury 1997). These studies found reasons related to household cash-flow management (don't write enough checks, don't have enough money, can't manage or balance an account), attitudes (don't like dealing with banks, desire for privacy of financial affairs), and costs and fees (minimum balances, service charges). And there is a substantial body of anecdotal evidence on reasons why people may not have an account, including reasons such as bad prior experiences or distrust of the banking system (see, for example, Wessel 2001). Hogarth, Anguelov and Lee (2003) explored characteristics of checking accounts (minimum balance features, service charges) as reasons households did not have these accounts. They found that smaller family units, unemployed people, those with shorter planning horizons, older people, families with higher levels of education, those who had some other bank account (savings or CD), and those with better credit histories were more likely to give reasons related to account features as a reason for not having an account. However, they only explored reasons related to "product design" (that is, account features) and note that the "all other reasons" category could be disaggregated and explored further. There has been no other analysis of systematic differences within a multivariate framework.

Previous Research

In addition to the research looking at who does and does not have an account, we turned to work regarding motivations for not obtaining or using other financial products and services and barriers to the financial mainstream to determine if there was any additional empirical or theoretical guidance. Four themes emerge in the literature. Research on poverty in the 1970's through the 1990's focused on structural issues--discrimination, social organization--as well as lack of resources in low income neighborhoods (Moen, Dempster-McClain, and Walker 1999; Wilson 1987). For our study, the implication from this body of work is that some reasons for not having an account may be classified as institutional constraints.

Another body of work focused on the under-utilization of financial products and services as evidenced by the apparent under-saving of U.S. households for retirement and "less-than-optimum" participation in 401(k)-type savings plans (Bassett, Fleming, and Rodrigues 1998; Borleis and Wedell 1994; Lusardi 2000; Madrian and Shea 2000; Thaler 1994). Thaler's work in behavioral economics points toward the very human tendency to procrastinate. The natural conclusion from his work is for automatic enrollment in retirement savings plans with "opt-out" provisions rather than "opt-in" provisions. Madrian and Shea pick up on this idea and credit lack of participation in 401(k) to employee inertia; they posit that employees can be "motivated simply by the power of suggestion" (Madrian and Shea 2000, p.i). They go on to discuss that employee procrastination may be due to the complexity of choices as well as due to the lack of information. Lusardi (2000) cites lack of planning and lack of role models (older siblings or parents) as factors related to under-saving. Bassett et al. (1998) show that the presence or absence of an employer match of retirement savings influences participation, but that the rate of the match is not a significant determinant of participation. Borleis and Wedell (1994) suggest not only a match but also a loan program can increase participation in 401(k) plans. The relevant themes that evolve from this body of work include human motivation, informational constraints, and product features as reasons for not having an account.

A third body of research focuses on the asset gaps between poor and wealthy households, why these gaps exist, and what can be done to begin to close these gaps. The seminal work in this field is Sherraden (1991), along with Oliver and Shapiro (1995). Carney and Gale (2001), Denton (2001), and Wolff (2001) also address issues related to asset building among poor households. As with earlier poverty research, much of this work concludes that there are institutional constraints (e.g., asset limits in welfare programs that dissuade savings) that need to be addressed via policy mechanisms as well as household attitudes and habits that need to be addressed via consumer education programs.

The final body of work is perhaps best classified as trying to address barriers to financial access, including the availability of basic banking accounts. Caskey's 1994 work on fringe banking was among the first in this area. Themes in this field include physical access to financial institutions (e.g., the location of a bank branch in a community or neighborhood or the prevalence of bank branches in the neighborhood; Jacobson 1995; Vermilyea and Wilcox 2002), the relatively high costs of accounts (e.g., high minimum balances, high fees), innovation in delivery channels, consumer attitudes toward technology, and consumers' level of information and education (see, for example, the discussion in Office of the Comptroller of the Currency 1997), and institutional constraints (e.g., poor credit histories or previous mismanagement of an account; Gores 2001).

Conceptual Frameworks

Consumer behavior is rarely one-dimensional, and consumer studies often benefit from bringing a multidisciplinary approach to the study at hand. Conceptually, economics, psychology, marketing, and human capital theory all provide frameworks for analyzing households' reasons for not having a checking account. Under an economic framework, households make decisions based on cost-benefit analysis (Becker 1981). If a household finds holding a bank account does not pay off--that is, if the benefits of holding an account do not exceed the costs--they will decide not to have a bank account. Households who have undertaken this cost-benefit calculus may give reasons relating to account features, such as the minimum balance requirements are too high, the service charges are too high, or that they do not write enough checks to make having an account worthwhile.

From a psychological perspective, motivation is a key component. Bettman (1979) defined motivation as the desire to make the effort to carry out activities, in terms of both direction and intensity. According to Simon (1967), motivation is the mechanism that governs movement from one's current state to a desired end state. In this tradition, researchers viewed motivation as the driving force for consumers to engage in certain behaviors (Burnkrant 1976; Hansen 1972; Howard 1977; Howard and Sheth 1969; Nicosia 1966).

Human motivations can influence whether households want to deal with or avoid mainstream financial institutions. These households may give reasons for not having a checking account such as not wanting to deal with banks or preferring to keep their financial affairs private (see, for example, Caskey 1997a). Alternatively, households can have more product-specific reasons for their lack of motivation to open a checking account: households may say they intend to open an account but have not gotten around to it, they do not need or want a particular type of account, or they do not have enough money to make having an account worthwhile (that is, after cashing a check and paying their bills, there's not enough left to put into an account; see Dunham 2001).

Means-end theory in marketing literature explores a consumer's value hierarchy associated with a product (Cohen 1979; Gutman 1982; Myers and Shocker 1981; Peter and Olson 1994; Woodruff 1997), distinguishing three levels of abstraction. At the most concrete level of the hierarchy, consumers describe a product in terms of attributes, which are physical, tangible features (Woodruff and Gardial 1996). Examples of checking account attributes include fees and minimum balances. The second level of abstraction is consequences, which represent the benefits of product possession and consumption. For a checking account, the consequences might include ease of bill payment, transaction convenience, and ease of money management. The most abstract level of the value hierarchy is desired end state, which reflects the consumer's goals, core values, and beliefs that guide behavior (Bagozzi and Dabholkar 1994; Woodruff and Gardial 1996). For the checking account ownership, the desired end state might be financial security.

Drawing on human capital theory, issues of learning and skill development may relate to reasons for not having a checking account. Some households may lack the skills and ability to manage a checking account. Considering the low financial literacy and numeracy skills of some consumers, some households may not know how to...

NOTE: All illustrations and photos have been removed from this article.




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