Americans saved just 4.1% of their income during the third quarter of 2024; by comparison, people in the eurozone save roughly 15% of theirs.
The high-level number is bleak, and it doesn’t get much sunnier with a closer look. That’s because Americans put aside money at wildly different rates, with the wealthiest people raking up the lion’s share of savings. Among the country’s poorest households — those earning less than $26,000 per year — only 30% have a savings account. And 4.2% of Americans are unbanked entirely.
The country’s poorest families face predatory lending practices perpetrated by institutions like payday lenders and check-cashing services. These are the households that can benefit the most from responsible financial help from banks and credit unions. So what gets in the way?
Macroeconomic Factors
It’s expensive to be poor.
According to the United Way, inflation for middle- or working-class Americans outpaces that of the broader economy. The cost of essential goods and services — items like housing, childcare, food, transportation, health care, and basic technology — eats into the budget of poorer families to a greater extent than it does for those with higher incomes, especially in this post-COVID, high-inflation era. The rate of price increases is higher for low-income consumers, too. And like goods and services, sales tax takes a bigger chunk out of lower-income Americans’ budgets than it does for higher-income Americans.
All of this leaves many lower-income consumers — a demographic many credit unions serve — with little left over to save. When an FDIC survey asked unbanked households why they don’t have banking accounts, a full 42.3% cited not having enough money to meet minimum balance requirements. This dearth of savings diminishes the capacity to build financial slack, which Brookings Institution defines as the “breathing room … to make relatively costless adjustments to align resources with needs.”
Lack Of Trust
Exploitation and discrimination, high fees and hidden costs, economic insecurity, cultural norms, and more have created an environment in which some lower-income Americans simply don’t trust the financial services system. According to the FDIC survey, 36% of unbanked Americans cited trust as a reason they don’t have a bank account.
Indeed, insufficient funds, high fees, and poor credit scores have historically limited low-income Americans’ access to mainstream financial institutions. The history of redlining among financial institutions also has had lasting, damaging effects on many lower-income communities of color, perpetuating the gap in racial wealth and reinforcing distrust.
Although the rates and fees associated with title and payday lending, check-cashing services, and the like have long been established as predatory in nature, at least their rates and fees are clear, straightforward, and advertised up front. For a subset of U.S. consumers who might have little to no financial education, that’s a breath of fresh air compared to the seemingly unpredictable fees levied by mainstream FIs.
Ultimately, this lack of consistency and transparency has taken a toll on consumers. According to the FDIC study, 29.3% cited the unpredictability of bank account fees as a reason they don’t have an account.
The Education Gap
Finally, for many low-income Americans, the barriers to saving simply boil down to a lack of knowledge regarding available resources.
This is where credit unions have a significant role to play.
In one sense, low-income Americans are the experts in low-income finances. After all, they are the ones weighing financial choices, consequences, and limits every. single. day. They have practical knowledge that is merely academic for others. However, these same experts also might be unaware of benefits that are available to them. For example, in 2022 nearly one in five eligible taxpayers did not claim the Earned Income Tax Credit. That’s an average of $2,541 that 80% of eligible filers in need left on the table.
Credit unions are perfectly positioned to help fill this education gap. According to the National Credit Union Administration, slightly more than half — 53% — of credit unions offer financial education as a member service; 54% offer financial counseling; and 32% offer financial literacy workshops. When members are in trouble, credit unions need to step in with programs and assistance to get them back on their feet. But with barely half of the industry providing financial services and counseling, there’s plenty of room for improvement.
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