Cash-Only Living Not So Affordable

Payin in cashSince January is a time for fresh starts, it's not unusual that this time of year brings with it the desire by some to "break free" of the financial mainstream. Articles like this one chronicle the eschewing of conventional banking and credit products in favor of living a cash-only existence.

The bottom line, as this writer and others who attempt similar stunts quickly find out, is that shunning mainstream banks is hard -- and expensive.Alternatives to ordinary checking accounts, debit and credit cards are scarce, sometimes sketchy and almost always pricey. Most banks won't cash a check for a non-account holder and check-cashing storefronts charge a hefty fee for the privilege.

Paying things like phone, cable and utility bills entails driving to different locations and using expensive money orders to keep the accounts in good standing. Undertaking common transactions like renting a car or buying a plane ticket with cash entails significant outlays of both time and money.

Many unbanked Americans, as they're called by the Federal Reserve, which estimates that this group numbers a whopping 43 million, rely on this patchwork of check-cashing outlets, money orders and pricey prepaid debit cards to cover basic expenses most of us pay with a mere swipe or click.

For these 43 million unbanked Americans, they have no other choice but to rely on inconvenient and expensive alternatives. The Federal Reserve Bank of St. Louis said in a recent paper that the people most likely to be unbanked are poor, poorly-educated, young or immigrants; in other words, people for whom a 1.8% charge to cash a paycheck is an especially heavy burden.

"There are very few options for this population," says Jose Garcia, associate director for research and policy at consumer advocacy group Demos. Garcia tells WalletPop that many of the unbanked fall into this category because previous financial hardships landed them on banks' radars (perhaps by abandoning an overdrawn account or having a history of bouncing checks) as undesirable customers. "It's not as profitable as somebody who banks online and always has money in their account," he says, adding that many of the unbanked aren't computer savvy and may not speak English as a first language, which necessitates more hand-holding on the part of bank employees. In an era where a growing number of banks are charging customers just to speak with a teller, it's clear that banks want to maximize their per-customer profitability at all costs.

However, the Fed report points out that the best way to give this population more financial stability is to get them into the banking mainstream, stating, "[T]he key advantage to consumers having bank accounts is avoiding costly alternative financial services and enabling families to build and protect their wealth."

So, while you might fantasize about throwing away your banking relationships, keep in mind that the alternatives are not only more expensive, but often less convenient and less secure, as well. Shop around instead for a bank (or credit union) with better customer service or lower fees if you don't like what you're getting from your financial institution and be grateful you have the option of not being one of those 43 million.
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