Deep down, we all think about disappearing to some degree or another. Some of us merely want to drop off the radar to avoid our families around the holidays. Others want to completely go “off the grid,” Christopher McCandless style, and live an alternative life. Or perhaps you just don’t want your personal information publicly available on the internet. On some level, there’s a mutual understanding for those who want to slide into anonymity.
There are a lot of ways you can do it, too. You can stop using social media, for instance, erasing your online footprint. Or you can buy an RV or live in a tent without electricity or running water — a bit extreme but still doable. Another way in which millions of people are getting off the grid? Forgoing the use of the modern banking and financial system.
There are millions of people in the United States (roughly 7% of U.S. households) who don’t use banks. Having lived through the financial crisis — and witnessing many of the other scams and sketchy behavior banks have engaged in — it’s not hard to blame them. But modern life, sans a modern bank, is an odd concept to those of us who are firmly rooted in the traditional model. We have our accounts readily available on our smartphones, our paychecks are deposited automatically, and we can pay back our friends through Paypal or Venmo. Easy peasy.
Given that it’s so easy, why do so many people stay away from banks? And are they on to something? First, we need to dig into what banking “off the grid” actually means and what it entails.
Banking ‘off the grid’
Numbers from a Federal Deposit Insurance Corporation study tell us 7% of U.S. households are “unbanked.” In addition to that, millions more are “underbanked.”
“7 percent of households in the United States were unbanked in 2015. This proportion represents approximately 9 million households,” the FDIC report said. “An additional 19.9 percent of U.S. households (24.5 million) were underbanked, meaning that the household had a checking or savings account but also obtained financial products and services outside of the banking system.”
Use of those products and services outside of the banking system is what we’re referring to when we say “off the grid.” And they typically mean people are using paycheck-cashing services, cash for purchases, and money orders to pay for things, such as rent.
All in all, the figure you need to remember is roughly a quarter of the U.S. population is actively avoiding banks. The big question, naturally, is why?
Why people don’t trust the banks
There are two possible answers. One is people are, in some cases, too poor to effectively use the financial system. The other is they simply don’t trust the banks.
First, the idea that people are too poor to use the system is a bit counterintuitive. We typically think people use banks and financial products to improve their monetary standing. So how could people be actively priced out of the market for those products and services? There’s a lot to it, but basically it can be expensive to use a modern bank. And the less you have, the more expensive it is.
Minimum balance fees, debit and credit card fees, and overdraft fees are a few examples of how a bank account can actually end up draining rather than helping you.
Second, people don’t trust the banks. This is easier to sympathize with, given that the banks seem ready to throw their customers under the bus at every opportunity. Take the recent Wells Fargo fiasco, for example. Or look at the numerous times banks fraudulently tried to foreclose on people’s homes. In aggregate, people lose faith in the system and ditch it.
But who are these people?
Who’s ditching the system?
As mentioned, the people who are eschewing the banking system are those least served by it — and that’s mostly poor people. Some of the key distinctions, pointed out by UnbankedTrends.com (via National Business Helpers), include the fact that the unbanked and underbanked are 60% white, 47% are employed full time, and 41% are not employed. Of that 41%, though, half are retired or “homemakers.”
And where are they going?
Say you’re among the millions who are unbanked or underbanked. What are you doing with your money instead? And where are you turning for financial services? Usually they’re expensive, high-fee alternatives. That includes check-cashing services, payday loan stores, pawn shops, and rent-to-own businesses.
When these people receive their paychecks, for example, they don’t deposit it into their accounts. They take it to a check casher, who gives them cash minus a fee. That transaction alone can eat up a significant percentage of your take-home pay, especially if you’re earning minimum wage. You might then take your cash to get a money order, which you can use to pay your rent, etc.
It can be more work than biting the bullet and using a bank, so what are some of the benefits? Why are people willing to “unbank” themselves?
What are the benefits of nontraditional banking?
There are some legit reasons someone struggling financially would want to avoid using the financial system. In some cases, it becomes easier to avoid debt collectors and wage garnishment. You can also avoid those costly fees, such as debit card fees, minimum balance fees, and overdraft fees. We’ll also have to take those trust issues into account. If you don’t have an account, you don’t have to deal with predatory sales tactics, pushy bank reps, or the feeling that you’re being sold out.
That’s not to say avoiding the banking system is a good idea, though. There are downsides, too.
Why it might not be a good idea
The most obvious downside to remaining “unbanked” is it can be very expensive. Although banks will hit you with fees for a variety of things, the fees to cash your paycheck and otherwise get on with your life add up, too. You might also unwittingly agree to predatory loans (with astronomical interest rates) and other financial offers. In addition to that, you can miss out on the opportunity to build credit and a rapport with your bank — which will come into play if you plan on applying for a mortgage or auto loan at some point.
You’ll want some sort of financial history if you plan on making a big purchase at some point in your life. If you’re hoarding cash under a mattress instead of investing or using a savings account, inflation will slowly eat away its value, too.
‘On the grid’ alternatives to banks
OK, so you don’t trust the big banks. You also don’t have a lot of money and are worried opening an account will end up hurting more than helping you. But you also want to get back on the grid to some extent to build credit and financial history. What do you do?
Look beyond the big banks, for starters. Although Bank of America, Chase, and Wells Fargo branches are everywhere, there are also scores of others that might be a better fit. Look into local credit unions, for example, or even online banks.
What about banking deserts?
One hurdle some low-income folks run into is they live in a “banking desert.” You might have heard of “food deserts” in parts of some cities, and this is more or less the same thing — except it applies to financial products and services. These areas, where banks or credit unions are hard to find or nonexistent, are common in rural or poor areas and exacerbate the “unbanked” problem.
If you’re in one of these areas, use technology to your advantage. There’s been an influx of online banks in recent years, and these might be the best route to go. Take a look at those companies, and see whether you can find a good fit. Or, if all else fails, you can try to go all-in on the “off the grid” lifestyle.
Pawn shops, trading, and ‘buy nothing’
If the idea of returning to the traditional financial market makes you gag, then your focus should be on keeping and saving as much money as you can without having it swallowed up by predatory lenders and high-fee servicers. You could return to your roots and try bartering or trading to get what you need. Pawn shops are probably the most common form of this these days, but you can also try trading at swap meets and farmers markets. Or even look into neighborhood groups that try to reduce household expenditures to zero through trading.
There are risks associated with keeping your finances off the grid, but it can be done. Just be aware it might hurt you in the long run or even be more expensive.