 |
View
Issue as a PDF
In Memoriam:
Irving B. Harris, 1910-2004
A Word from the Dean: State of the
School - My Vision for the Future of the Harris School
Trickle
Down Effects: Parents’ Unemployment and Their
Children’s School Performance
Immigrant
Entrepreneurship: Does Fulfilling an American Dream
Cause Economic Displacement?
Foundation
Support Helps Develop New Urban Leaders
Making a Difference: Diane Gibson,
AM‘96, PhD’99
Making
a Difference: Irene Basloe Saraf, AM’95
Community Notes
The
Levin Faculty Fellowship: Funding Urban Research
Cash & Carry:
Banking and the Poor
Policy
in Practice: Students Reflect on Group Internships
At Home and Abroad
The
2004 Entering Class
Keep
in touch!
|
|
Assistant Professor Christopher Berry
on Why Banks May Not Be Best
The move to get poor families
to use banks instead of check-cashing outlets or payday
loans has captured the public imagination. We often hear
about the outrageous fees check-cashing outlets charge
or how payday lenders prey on the poor. Improving the “financial literacy” of
the poor, many argue, will help them avoid wasting their
hard-earned money.
However, a study under way by Assistant
Professor Christopher Berry in three major US cities
shows that the poor are certainly not illiterate when
it comes to finances. When asked to estimate the fees
charged by check-cashing operations and banks, the respondents
in Berry’s study were
right on the money. Also, the vast majority of “unbanked” households
pay less than $100 per year in total fees for financial
transactions.
According to Berry, the “fringe banking” sector
is highly competitive, with low barriers to entry and
little market concentration. Check-cashing operations
typically charge from 1% to 2% of face value to cash
a check. “Many low-income consumers look on this
charge as a fee for convenience, just as many of us regularly
pay $1 or $2 at an ATM.” And similar to ATMs, check-cashing
operations generally have longer hours, more locations,
and provide quicker
turnaround of checks into cash.
“Banks have a totally different pricing structure,” says
Berry. “Checking accounts are offered for ‘free’ but
with strings attached, such as a minimum balance or other
restrictions. It’s often just not obvious that
the bank is indeed cheaper.”
To further keep their
costs down, many low-income families cash their checks
at the issuing bank or at grocery stores that do not
charge a fee. They avoid money orders by paying their
bills in cash. Cash, in fact, is a way of life for
many low-income families. Many noted that they did not
have a checking account because few establishments, even
landlords, in their neighborhood took checks. In short,
many of these individuals are doing the right thing economically,
considering the costs and the convenience.
“This is not to suggest,” says Berry, “that
we shouldn’t be concerned with improving their
options. The fringe institutions would say they’re
offering the services people need. That doesn’t
necessarily mean that there can’t be improvements.” ShoreBank
in Chicago, for example, is developing a “payday
card” issued by an employer, which is “loaded” each
payday and the individual can use it as a credit or debit
card. “Improvements for low-income families,” says
Berry, “may hinge on these sorts of technological
improvements.”
Barbara Ray
|
