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Social Security Payments to the Unbanked͒
Drew M. Anderson͒
University of Wisconsin – Madison
Contact: [email protected]
May 2012
Draft, not for distribution or citation.
Abstract: Recipients of recurring payments from the federal government
will be required to switch from paper checks to electronic payments by
March 2013, if they are in the minority who have not already done so. We
examine all federal payment recipients in January 2009, focusing
specifically on households that do not currently have bank accounts (are
unbanked). In contrast with previous studies, we do not find that federal
payment recipients are unbanked at a higher rate than the rest of the
population. Further, we find that the majority of unbanked recipients (as
measured by self-report) already receive payments in an electronic format
(as measured by administrative records). Finally, we find that only a small
percentage of payment recipients prefer not to engage with banks, whereas
up to 89 percent could benefit from electronic payment formats expanding
the set of financial products available to them. We conclude that for most
unbanked households the burden induced by the policy shift to electronic
payments will be minimal. Policy attention should be focused on
Supplemental Security Income recipients, who are most likely to use paper
checks, alternative transaction services, and representative payees, and
also may be eligible for the few exemptions from electronic payment
requirements.
The research reported herein was performed pursuant to a grant from the U.S. Social Security
Administration (SSA) funded as part of the Financial Literacy Research Consortium. The
opinions and conclusions expressed are solely those of the author(s) and do not represent the
opinions or policy of SSA, any agency of the Federal Government, or the Center for Financial
Security at the University of Wisconsin – Madison.
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Introduction
An important, but often overlooked aspect of the federal safety net is the set of financial
instruments by which payments are delivered. While the federal government would
prefer to use banks to transact with the public, not all members of the public choose to
open bank accounts. This could be of special concern if people likely to draw on
government payments are also more likely not to use bank accounts (be unbanked).
Using federal administrative data on benefit payments and earnings, linked to a
nationally representative survey on the use of bank accounts, we describe the
intersection between the unbanked population and the population receiving payments
for Old-Age, Survivors, and Disability Insurance (OASDI) and/or Supplemental Security
Income (SSI). We measure the use of bank accounts and forms of payment chosen by
Social Security benefit recipients in early 2009 during the Great Recession. We use our
findings to predict the welfare effects of the coming shift to electronic delivery of all
recurring payments by the US Treasury.
Social Security benefit claiming is countercyclical, mainly because the alternative to
receiving benefits, the labor market, becomes less attractive to eligible beneficiaries
during economic downturns (for example, see Coile and Levine 2007 on retirement
benefits and Autor and Duggan 2003 on disability benefits). Similarly, bank accounts
become less cost-effective as deposits shrink with lost employment and income. Among
households that are unbanked, that is, do not use a checking or savings account at a
bank, survey evidence indicates that the modal reason for this is “not enough money”
(Bucks, Kenickell, and Moore 2006; Bucks, Kenickell, Mach, and Moore 2009; FDIC
2009). Alternative transaction services like check-cashing and money orders often come
with high fees. However the costs of banking include the risks, which may increase
during periods of low income, of overdraft and low-balance fees. Transitions into benefit
receipt and out of banking, in combination with variation in how people choose to
redeem government payments across the income distribution, could lead to cyclical
changes in the methods and costs of redeeming government payments.
In addition to these cyclical changes, there is a secular trend toward electronic payment
of government transfers. Most people prefer that their payment be directly deposited in
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an existing account, which saves time and hassle. For those still choosing to receive a
paper check, the trend toward electronic payments will be accelerated by a new US
Treasury rule mandating that all recurring payments be made electronically. After
resolving to do so with the Debt Collection Improvement Act of 1996, the US Treasury
finally began shifting all paper check benefit recipients to direct electronic deposit in
March 2011, and will complete the shift by March 2013. The predicted government
savings of over $100 million per year has been put off due to concerns about the welfare
of former paper check recipients, especially the unbanked, after the switch (Prescott and
Tatar 1999; Federal Register 2010). A small number of these will be eligible for
exceptions and grandfather clauses. To service the remaining recipients who would
choose paper checks, the Treasury offers Electronic Transfer Accounts (ETAs), special
accounts tailored to receive government payments, as well as Direct Express ®, a low-
cost prepaid debit card whose balance can be cashed for free after each payment, at
participating locations.
The policy change towards mandated electronic payment has the potential to both
benefit and harm payment recipients. The debit cards could increase access to low-cost
transaction services. However the debit cards will be an unwelcome imposition on the
population that prefers not to use electronic payments. Because the vast majority of the
recipient population does use transaction accounts at banks, we focus on the unbanked.
Throughout, we distinguish disability payment recipients, because some will have
limitations on physical access to banks, or cognitive limitations on the ability to manage
bank accounts. We also distinguish the group hit especially hard by the Great Recession,
which we define as those experiencing a marked drop in income during 2008, just
before our sampling time frame.
Since both payment recipients and the unbanked are small subgroups of the population,
and we hope to study their intersection, we require a large-sample data set with
information on government payments, banking, income, and financial capacity. The
Federal Deposit Insurance Corporation (FDIC) National Survey of Unbanked and
Underbanked Households is a nationally representative but underutilized survey that
directly asks about use of bank accounts and alternative financial services. In unbanked
households, it inquires about reasons for not having or having closed bank accounts.
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This reveals preferences that can be used to make inferences about the effects of the
policy change to mandated electronic payments. We link these data to Social Security
Administration (SSA) records of benefit payments and earnings. These administrative
data include the incidence of payment and the type of Social Security payment (e.g.
retirement, disability, or survivors) with very low measurement error. We can directly
observe the method of payment (electronic or paper check) and the use of representative
payees. Together, these two data sources create a unique opportunity to examine both
the form of payments from SSA as well as the preferences of the population that receives
them. The reference period of the FDIC survey in January 2009 also offers an
opportunity to focus on vulnerable subgroups during the Great Recession.
Unlike earlier studies, we find that bank account use is just as prevalent among payment
recipients as among the general public. Although they live with householders that
reported no checking or savings accounts in the household during January 2009, fully
69 percent of unbanked payment recipients redeemed their January 2009 payment
electronically. This figure is well below the 92 percent of banked recipients using
electronic payments, but still shows familiarity with electronic payments among the
unbanked. Besides the contradiction between direct reports of banking and actual use of
financial services, the familiarity with banking of unbanked households does not come
as a surprise. Nearly half of all unbanked payment recipients report having used bank
accounts before. When answering questions regarding the main reason that no one in a
household is banked, only 11 percent of the unbanked reveal a direct distaste for dealing
with banks. The rest are constrained from banking by financial, legal, or supply-side
concerns. Therefore for most households the mandated shift to electronic payments will
have little effect.
Disability payment recipients, mostly driven by SSI recipients, face the largest barriers
to moving toward electronic payments. They are more likely than average to use paper
checks, alternative transaction services, and representative payees. About 30 percent of
SSI recipients report being unbanked and receiving a paper check, representing just
under 0.2 percent of the US population, or around 0.5 million people. SSI recipients
have slightly more experience than other groups using prepaid debit cards, but the
number who have done so is still low at 13 percent. Use of representative payees does
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not significantly increase access to bank accounts, as over two thirds of representative
payee users designate a payee within their household.
To support these findings, we explain more deeply how our survey and administrative
data combine to give a realistic look at the doubly vulnerable populations receiving
benefit payments but reporting no bank accounts. We then describe the patterns of how
payments are paid and redeemed prior to the implementation of the mandate. We will
describe use of direct deposit, cashing of paper checks at banks or check-cashing
services, and use of intermediaries such as family members or representative payees.
Finally, we discuss financial choices in light of revealed behavior as well as rationales for
behavior reported in surveys. Predicting the welfare effects of the Treasury’s policy
change requires an understanding of who is unbanked and why. While economic
downturns like the Great Recession can swell the ranks of the unbanked and increase
the Social Security rolls, moving payees permanently toward electronic financial
instruments does not seem to pose a particularly large threat to their well-being.
Data description and characteristics of the unbanked
The Current Population Survey (CPS) creates a nationally representative sample of
American households by surveying a rolling panel of physical home locations. The FDIC
fielded its National Survey of Unbanked and Underbanked Households to the January
2009 CPS sample. Administrative data from SSA on benefit payments and earnings
were linked to the March 2009 CPS sample. The quasi-longitudinal nature of the CPS
means that half of the homes in the CPS sample during January 2009 are also in the
CPS sample during March 2009. Within these homes, some household matches are lost
to migration, as well as a few to nonresponse, mortality, and recording errors (Madrian
and Lefgren 1999). Our resulting matched sample consists of 47,781 people, weighted
according to the January 2009 CPS sample design. This sample size is sufficient for us
to examine the vulnerable subgroups that are central to our analysis. In Table 1,
demographics and banking information come from the January 2009 CPS, while
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administrative records provide benefit payment information from January 2009 and
yearly earnings data for the late 2000s.1
Most people report possession of a transaction account at a bank in household surveys.
In the FDIC survey, which asks on a household basis, 7.6 percent of people live in
households that do not have a transaction account at a bank (see Appendix Table 1).
This figure declines by one percentage point in our analysis sample, however, which is
restricted to FDIC survey respondents who match to the administrative data via the
March 2009 CPS (see Table 1). The matching process uses address, income, and age
from tax returns and other administrative sources. Households that moved between the
January and March CPS, or moved between the March CPS and filing their tax returns
do not appear in our data set. It could be that unbanked households are more mobile
and thus fail to match. Relatedly, people may be more likely to be temporarily unbanked
during moves. As a result, the size of the unbanked population presented in this paper
should be viewed as a lower bound. Nonetheless, the overall measure is close to Survey
of Consumer Finances (SCF) measures which provide the industry standard. In the SCF,
which inquires on a family basis, 7.9 percent are unbanked in 2007, down from 8.6
percent in 2001 (Bucks et al. 2006; 2009).2
Previous research has established that the unbanked are not randomly distributed in the
population. The unbanked tend to be young, non-white or Hispanic, not working, and
renters rather than owners (Bucks et al. 2006; 2009). Also, unbanked households tend
to have low levels of income and wealth (ibid.). Table 1 shows that our average
unbanked household is younger, much less educated, and slightly less metropolitan than
its average banked counterpart. These characteristics suggest that a lack of financial
capacity or lack of access to banks could be driving unbankedness. In fact, as evidenced
by survey responses discussed later in this paper, the main driver of unbankedness is
lack of enough money to make banking cost-effective. The average income among
unbanked households is less than 16 thousand dollars a year. Income is measured from
1 Each table appears at the end of this document, both with and without replicated standard errors reported. 2 It is not known whether this slow decline was reversed during the Great Recession. Results from the 2010 Survey of Consumer Finances will be released in June 2012.
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SSA’s administrative records and summed over the members of each household.
Because these households are 3.7 people on average, the average household would be
below the official poverty threshold if the household were evaluated as a family.
In addition to low income levels, unbanked households experienced greater income
volatility during the Great Recession. To identify the households hit hardest, we use
longitudinal, administrative data on yearly income. First, we sum administrative income
from all household members using the household structure from our matched CPS
sample. We calculate a less noisy measure of pre-recession income by averaging
incomes over the immediate pre-recession years of 2005-2007.3 We capture recession
impacts just before our early 2009 snapshot by measuring each household’s percent
change from this 2005-2007 averaged income to income in 2008. The distribution of
income changes shown in Table 1 illustrates that unbanked households tended to
experience both larger percent increases and larger percent decreases in income. About
one fifth of households experienced a decline of ten percent or greater, and we define
those as having experienced an especially sharp income loss early in the Great
Recession. We proceed using this more succinct measure of income volatility.
We examine disability using both survey and administrative data. From both
perspectives, the unbanked population has a disability incidence that is more than twice
as high as for the banked population. In the CPS survey data, we define disability as
indication that an adult civilian has an impairment that limits or prevents the work they
are able to do. This group covers one tenth of the banked population but one fifth of the
unbanked. Following Bound and Burkhauser (1999), defining disability as giving a
positive response for work impairment in two consecutive years would more closely
correspond to the statutory definition of disability. Using just one positive response
therefore overestimates the size of the population with work impairments. Matching the
CPS longitudinally over an entire year’s span (March to March) creates a special sample
with a reduced match rate to administrative data, but allows for comparison between
the two survey measures of disability (see Appendix Table 1). Though work impairments
over two years are about half as likely as those in one year (6.33 percent versus 10.53
3 All dollar amounts are indexed to 2009 using the Consumer Price Index (CPI).
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percent), indicating that the two measures differ substantially, we prefer not to use the
attenuated March-to-March sample. Appendix Table 1 shows that the unbanked
proportion steadily decreases with lost nonmatching observations.
Instead we focus on the administrative data on Disability Insurance (DI) and SSI.
Workers with a history of earnings who suffer from a long-term health impairment that
prevents work may apply to receive DI. SSI serves people with limited earnings
histories, such as children with impairments, people with congenital impairments like
blindness, and people without recent earnings. Because of the eligibility process, which
certifies the existence of a health condition and the inability to earn a specified amount,
the population receiving disability benefits is at the intersection of those with severe
impairments and adverse economic outcomes.4 We tabulate the proportion that
received a disability payment during January 2009, which is well below the number
reporting a work limitation, at four percent of the population. Even among allowed
claimants, the proportion actually drawing a payment fluctuates due to means tests and
earnings tests. While unbanked individuals are nearly as likely to receive a Social
Security payment in January 2009 as their banked counterparts, they are much more
likely to receive a disability payment, ten percent to three percent. Disability payments
account for a majority of the Social Security payments received by the unbanked, as
expected for this younger population not near retirement age.
Demographics and finances of the unbanked clearly differ from those of the banked. To
eventually evaluate the policy change to electronic payments, the payment recipient
population is a more appropriate focus than the general population. We proceed within
the 18 percent of the US population who receive Social Security payments, discussing
first survey measures of bank account use, and then administratively measured payment
methods.
4 The earnings threshold, referred to as Substantial Gainful Activity, was $980 per month for non-blind beneficiaries in 2009.
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Financial services used by government payment recipients
We add to a series of estimates of bank account use among payment recipients. Since we
can measure banking and payment receipt for a large, national sample, our approach
improves on earlier work. US General Accounting Office (2002) uses the Survey of
Income and Program Participation (SIPP) to measure payment receipt and attempts to
infer banked status from reports of account values. US General Accounting Office
(2002) estimates that 23 percent of DI and 67 percent of SSI payment recipients are
unbanked. These figures are likely biased up from the actual proportions due to
underreporting of asset values (Czajka, Jacobsen, and Cody 2003). Further,
underreporting of government payments biases down the measured proportion
receiving payments (Huynh, Rupp, and Sears 2002). A solution to both these problems
is to target small-sample banking surveys to a sampling universe of paper check
recipients (see Booz, Allen & Hamilton (1997), Dove Associates, Inc. (1999), Federal
Reserve Bank of St. Louis (2004), and KRC Research (2007)). These studies suffer from
nonrandom selection into the sample and small sample sizes. We summarize these
studies in Figure 1. The ranges of estimates for unbanked status among paper check
recipients of DI (20 to 30 percent) and SSI (55 to 70 percent) encompass the US General
Accounting Office estimates. In comparison to the SCF estimates, the clear conclusion
from all of these estimates is that the proportion unbanked is notably higher for the
recipient population than the population in general.
Our results contrast sharply with this conclusion. We attribute the large difference in
estimates to two factors. First, in contrast to US General Accounting Office (2002)
which uses the SIPP, we use administrative records to indicate payment receipt. Ours is
the first study in this area to do so. When we base estimates of banking on the FDIC
survey, six percent of the administratively identified recipient population are unbanked,
the same proportion as in the general population (compare the top line of Table 2 to US
General Accounting Office (2002)). Second, in contrast to the remaining studies, which
appear in Figure 1, we use a large-sample survey for which national representativeness
is far more likely. For paper check recipients (comparable to the small-sample studies),
our estimates are shown in Table 3. Although higher than those in Table 2, these
estimates are still much lower than the comparable estimates in previous literature. For
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example, our estimate of 34.88 percent unbanked among paper check SSI recipients is
far below the 55 to 70 percent range in previous studies. Like previous studies, we
disaggregate by OASDI and SSI to find SSI recipients much more likely to be unbanked.
Unbanked people represent a quarter of SSI recipients whether or not they concurrently
receive OASDI, while the unbanked represent just three percent of OASDI-only
recipients. As before, we attribute the differences to our ability to measure payment
receipt with very little error in a nationally representative sample.
Continuing to draw insights from both survey and administrative data, we next examine
the ways government payments are redeemed. Table 2 provides a snapshot for the
payments that were delivered in January 2009. Eligible claimants who were not paid a
benefit in this month are excluded from the snapshot. Paper checks go to one tenth of
payment recipients on average. However, the unbanked, representative payees, and SSI
recipients have higher propensity to choose paper checks.
Ours is the first study to directly measure both self reports and an administrative
measure of financial services use. Whereas the survey responses tell us how the
respondent believes payments could be cashed in his or her household, the
administrative data record how the payment was paid at the time of the survey. Our
survey measure of bank account use clashes with our administrative measure. While
payment recipients in unbanked households are much more likely to choose to receive a
paper check than their banked counterparts, a majority of them, 69 percent, actually use
direct deposit. The population responding to the FDIC survey on behalf of their
households had to confirm that they were either the lone adult, shared finances with the
other adults, or, if adults handled finances separately, that they had at least some
knowledge of the other members’ finances. It is puzzling that so many householders
living with payment recipients were unaware that the recipient was able to redeem
electronic payments.
As mentioned above, both the ETA and Direct Express ® payment options can receive
electronic deposits, and would probably not be considered “checking or savings
accounts” by CPS respondents. However, the take-up of these two products at the time
of these surveys was too low to entirely explain the large percent of the unbanked
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receiving direct deposits. As of November 2010, only 1.34 percent of all Social Security
beneficiaries used Direct Express ® and far fewer used ETAs, as identified by
administrative data (Office of the Inspector General 2010). Though our matching
procedures give us a slightly different sample from the Office of the Inspector General
(2010) report, we concur that SSI recipients are much more likely than OASDI
recipients to choose paper checks, at nearly as high a rate as unbanked individuals.
Table 3 provides estimates of banking by payment type within payment method.
Payment type trends remain the same within payment methods, with SSI recipients
being most likely to be unbanked. Each paper check recipient type dominates the
corresponding electronic payment type in unbanked proportion.
Whether or not their payment is delivered by direct deposit, benefit recipients can
legally appoint a representative payee to handle their transactions with SSA. About 13
percent of our sample of payment recipients in January 2009 use a representative
payee. We sort representative payees into in-household and out-of-household using CPS
identification of household relationships and administrative classifications of
beneficiaries’ relationships to their representative payees. A large majority of child
recipients used a representative payee. For adults, representative payees could serve to
expand financial capacity and decrease transaction costs on behalf of their constituent
benefit recipients. On the contrary, our data show that a large majority of representative
payees live in the same household as the beneficiary. This means that by our survey
measure of bank account use, in unbanked households these financial representatives
are unbanked as well. Recipients using representative payees are also much more likely
than average to choose paper checks.
Given the situation in early 2009, described here, the phase-in and eventual complete
mandate of electronic payments will cause a change in behavior for a small but highly
vulnerable segment of the population. In order to fully evaluate the possible effects of
the policy on these households, we describe the policy change further and explore survey
responses revealing preferences for particular financial products and services.
The policy change to electronic payments
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For the banked receiving deposits electronically, no change is mandated. For the banked
currently choosing a paper check, the inconvenience of the mandated change is
minimal, as accepting electronic payments does not require using any new financial
products besides the account they currently use. Unbanked paper check recipients, and
some new unbanked enrollees, will have to make a possibly sizeable behavioral shift.
After soliciting and meticulously documenting feedback from the public, the Treasury
decided that the Direct Express ® card could adequately serve the needs of almost all
unbanked payment recipients (Federal Register 2010). Exemptions are available for
those born in 1921 or earlier, for geographically remote recipients unable to tap in to the
Direct Express ® card network, and for those with cognitive impairments that prevent
the use of the card. The phase-in of mandated electronic payments began in March 2011,
when new beneficiaries were no longer offered paper checks as an option, and after
March 2013, all beneficiaries must choose an electronic payment instrument.
Treasury began offering the Direct Express ® card in June 2008, and beginning in July
2009, Treasury encouraged migration to electronic payments through its Go Direct ®
campaign (see www.godirect.org and Federal Register 2010). Therefore our January
2009 paper check sample had access to Direct Express ® and ETAs, but may not have
been aware of that fact. Research on similar financial choices with potential long-term
savings, but short-term hassle costs, has shown inertia to be a powerful force (Madrian
and Shea 2000). Given these two facts, we do not accept the payment method choices in
January 2009 as strict revealed preferences. Introduction 0f the Direct Express ® card,
with proper information and/or required take-up, may actually be beneficial to some
paper check recipients. Returning to survey measures of banking, the FDIC survey
disaggregated the unbanked by their motivations for being unbanked using a battery of
questions about banking decisions. We divide the unbanked into three groups based on
their main reason for being unbanked (see Table 4). Unlike the FDIC Unbanked and
Underbanked Study, our focus is on redeeming government payments. Our division is
informed by each person’s likely reaction to being offered benefits on a prepaid debit
card.
The group most likely to resist the move to electronic payments expresses distaste for
banking not likely to be addressed by the Direct Express ® card. Reasons include lack of
13
trust and comfort when dealing with banks. This group is averse to banking and will
likely be displeased by debit card use, even if it may save them money. On the contrary,
another group expresses problems that can surely be solved by the Direct Express ®
card. They include bad credit or loss of bank accounts, needing to maintain low
balances, being poorly served by bank locations and hours, or being in immediate
transition between bank accounts. This group is likely to benefit from the card, as it
expands the set of financial products available to them. The reasons expressed by a third
and final group do not clearly suggest resistance to electronic payments, nor are they
necessarily problems that can be solved by a low-cost prepaid debit card. Inability to
manage an account, the vague but very common “not enough money,” as well as a host
of write-in and “none of the above” responses indicate general problems with using
banks. While the Direct Express ® card is friendlier toward low balances, it obviously
does not change the amount of money recipients have. Direct Express ® requires
management much like a checking account, but could represent an intermediate step
between dealing in cash, which can be costly and risky, and opening a bank account with
the possibility of high fees.
The group most averse to banking comprises 11 percent of unbanked payment
recipients. The group possibly helped by the push toward electronic payments
comprises 23 percent of unbanked payment recipients. Therefore the upper bound of
those who could be resistant to electronic payments is 77 percent (the most averse group
plus the ambiguous group), while the lower bound is just 11 percent (most averse group
only). Nearly half, 47 percent, of these survey-reported unbanked have used a bank
account before, and 69 percent of them received an electronic payment in the same
month as their householder reported them to be unbanked.
Table 5 displays alternatives to transaction accounts at mainstream banks, i.e. check
cashers, money orders, and prepaid debit cards. Not surprisingly, the unbanked are
more likely to use all three. This likely drives higher use among groups associated with
unbankedness, like SSI recipients and youths. Though the group with recession income
loss over ten percent is less likely to be unbanked (see Table 2), this group uses
significantly more alternative transaction services than the rest of the population.
Across all groups enumerated in Table 5, experience using prepaid debit cards is low.
14
However these households’ experience both with prior bank accounts and with
electronic payments suggests familiarity with similar financial instruments.
Conclusions
Like disability, unbanked status is not always easy to define. Each is a diverse
population, shaped by social expectations of work behavior and financial management,
macroeconomic trends, as well as government rules and programs. Because of the
algorithms used to match households in the January 2009 CPS to the March 2009 CPS
to the administrative data from SSA, our sample is less mobile than the nationally
representative CPS sample. We know that the proportion unbanked in our sample falls
by one seventh. On one hand, more mobile unbanked households may already prefer to
use electronic payments, as they are easier to redeem within a large network of service
providers. On the other hand, when combining multiple data sets, we compound loss of
hard-to-measure households that are most likely at risk. Future work on these topics
should take into account the fact that unbanked status can be poorly reported. Within
the 18 percent of our population receiving a Social Security payment, a majority of the
survey-reported unbanked redeem, in the same month, an electronic payment.
Our study reinforces prior evidence that when people forgo bank accounts, they do so
far more often because their financial situation limits the usefulness of a bank account,
as opposed to their abilities or tastes limiting their choices. A large majority of
unbanked individuals in early 2009 stand to gain from use of a low-cost, simple
instrument like Direct Express ®. This is true also among recipients of Social Security
payments, though disability payment recipients still raise special concern. Throughout
each measure, SSI recipients stand out as most disconnected from mainstream financial
choices. They are particularly likely to choose paper checks and are more likely to rely
on nonbank transaction services like check cashing and money orders. The population
of SSI recipients reporting unbankedness and whose payment redemption method does
not contradict their report, is small but represents around 0.5 million people. Many may
qualify for exemptions from the Treasury rule change, but the rest are likely to require
help as they transition to new financial behaviors.
15
Our data were recorded in the depths of the Great Recession. Loss of employment and
income increase reliance on government payments at the same time they can decrease
the utility of bank accounts. Emerging from the recession into an era where the
unbanked must adapt to using a prepaid debit card, it remains to be seen whether this
intermediate financial product will lead to greater take-up of bank accounts or shifts in
the use of representative payees. At the very least, we do not expect the inconvenience of
new payment methods to exceed the benefit of income replacement by OASDI and SSI.
Besides mandates like the Treasury shift to electronic payments, other policies and
products aimed at banking the poor must take into account the structural factors that
cause loss of income. Increasing financial capacity may not be a substitute for
ameliorating vulnerability to financial shocks.
16
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17
Federal Reserve Bank of St. Louis. Understanding the Dependence on Paper Checks: A
Study of Federal Benefit Check Recipients and the Barriers to Boosting Direct
Deposit. Washington, DC: United States Treasury, 2004.
Huynh, M., K. Rupp and J. Sears. The Assessment of Survey of Income and Program
Participation Benefit Data Using Longitudinal Administrative Records, of Survey
of Income and Program Participation Working Paper No. 238, 2002.
KRC Research. Go Direct SSA & SSI Survey. November 2007.
Madrian, B. and L. J. Lefgren. A Note on Longitudinally Matching Current Population
Survey Respondents. NBER Working Paper T0247, 1999.
Madrian, B. and Shea, D. The Power of Suggestion: Inertia in 401(k) Participation and
Savings Behavior, NBER Working Paper No. W7682, 2000.
Office of the Inspector General, Social Security Administration. Evaluation Report on
the Social Security Administration’s Informing Beneficiaries of Domestic
Electronic Banking Options, November 2010.
Prescott, E. S., and Tatar, D. D. Means of Payment, the Unbanked, and EFT '99. Federal
Reserve Bank of Richmond Economic Quarterly, 1999, vol. 85/4, 49-70.
U.S. General Accounting Office. Electronic Transfers: Use by Federal Payment
Recipients Has Increased but Obstacles to Greater Participation Remain.
Washington, DC: United States General Accounting Office, 2002. Retrieved from:
http://www.gao.gov/new.items/d02913.pdf.
18
2030
4050
6070
Per
cent
age
1995 2000 2005 2010Survey Reference Period
OASDI
2030
4050
6070
Per
cent
age
1995 2000 2005 2010Survey Reference Period
SSI
Note: Estimates from: Booz, Allen & Hamilton (1997), Dove Associates (1999), Federal ReserveBank of St. Louis (2004) and KRC Research (2007).
Figure 1: Percentage of Paper Check Recipients thatare Unbanked, Previous Studies
19
Table 1. Description of Banked and Unbanked Groups
Variable All People Banked Unbanked
Number of observations 47,781 45,092 2,689 Weighted percent of population 100.00% 93.41% 6.59%
All payment recipients 18.18% 18.24% 17.32%
Program OASDI 15.87% 16.41% 8.25%
SSI 1.55% 1.22% 6.18% Concurrent 0.76% 0.61% 2.90%
Type of payment Disability payment 3.86% 3.42% 10.08%
All other payments 14.31% 14.81% 7.25%
Work-limited adult observations 37,038 35,335 1,703 Work-limited 10.4% 9.7% 21.3%
Pre-recession household income $56,274.87 $59,135.27 $15,718.94
Recession income change 90th percentile 77.0% 73.3% 192.2%
75th percentile 29.0% 28.5% 46.3% Median 10.3% 10.3% 5.8% 25th percentile -6.8% -5.5% -42.2% 10th percentile -55.9% -51.6% -99.3%
Age 0-17 23.6% 22.6% 37.6%
18-64 62.9% 63.4% 56.6% 65 and over 13.5% 14.0% 5.8% Total 100.0% 100.0% 100.0%
Household size 3.30 3.27 3.70 Head completed high school or GED 88.36% 90.30% 60.88% Non-metropolitan 16.18% 15.93% 19.47%
20
Tabl
e 2.
Soc
ial S
ecur
ity P
aym
ent M
etho
ds
Varia
ble
Num
ber o
f ob
serv
atio
nsEl
ectr
onic
pa
ymen
tPa
per c
heck
Rec
eive
ow
n pa
ymen
tIn
hou
seho
ldO
utsi
de
hous
ehol
dB
anke
dU
nban
ked
All p
aym
ent r
ecip
ient
s8,
309
90.4
1%9.
59%
87.1
6%9.
35%
3.49
%93
.72%
6.28
%
OAS
DI
7,37
792
.72%
7.28
%91
.13%
6.84
%2.
03%
96.5
8%3.
42%
SS
I61
569
.53%
30.4
7%53
.46%
32.6
8%13
.86%
73.7
4%26
.26%
Con
curr
ent
317
84.9
0%15
.10%
72.7
4%14
.26%
12.9
9%74
.76%
25.2
4%
Dis
abilit
y pa
ymen
t1,
693
83.0
1%16
.99%
67.8
1%21
.51%
10.6
8%82
.82%
17.1
8%Al
l oth
er p
aym
ents
6,61
692
.41%
7.59
%92
.38%
6.07
%1.
55%
96.6
6%3.
34%
Unb
anke
d46
669
.14%
30.8
6%65
.06%
18.0
6%16
.88%
--
Ban
ked
7,84
391
.84%
8.16
%88
.64%
8.77
%2.
59%
--
Rec
essi
on in
com
e lo
ss2,
388
90.5
7%9.
43%
85.1
5%11
.89%
2.96
%94
.68%
5.32
%G
ain
or n
eutra
l5,
921
90.3
5%9.
65%
87.9
6%8.
33%
3.70
%93
.33%
6.67
%
Age
0-
1760
072
.77%
27.2
3%12
.16%
77.9
0%9.
94%
87.3
8%12
.62%
18
-64
2,11
486
.05%
13.9
5%81
.26%
11.1
3%7.
60%
87.2
0%12
.80%
65
and
ove
r5,
595
94.1
8%5.
82%
98.1
8%0.
69%
1.13
%97
.02%
2.98
%
Hea
d di
d no
t com
plet
e hi
gh s
choo
l or G
ED
1,59
289
.51%
10.4
9%89
.15%
5.95
%4.
90%
89.6
7%10
.33%
Hea
d co
mpl
eted
hig
h sc
hool
or G
ED
6,71
791
.08%
8.92
%85
.69%
11.8
5%2.
45%
96.6
9%3.
31%
Non
-met
ropo
litan
2,18
387
.22%
12.7
8%86
.05%
10.9
2%3.
02%
92.7
5%7.
25%
Met
ropo
litan
6,12
691
.26%
8.74
%87
.45%
8.94
%3.
61%
93.9
8%6.
02%
Rec
eive
ow
n pa
ymen
t7,
296
92.0
9%7.
91%
--
-95
.31%
4.69
%R
epre
sent
ativ
e pa
yee
in h
ouse
hold
726
79.9
4%20
.06%
--
-87
.88%
12.1
2%R
epre
sent
ativ
e pa
yee
outs
ide
hous
ehol
d28
776
.67%
23.3
3%-
--
69.6
4%30
.36%
Rep
rese
ntat
ive
paye
e
21
Table 3. Proportion of Payment Recipients Banked
Variable Number of
observations Banked Unbanked All electronic payment recipients 7,546 95.20% 4.80% OASDI 6,861 97.25% 2.75% SSI 420 77.51% 22.49% Concurrent 265 77.95% 22.05% All paper check recipients 763 79.79% 20.21% OASDI 516 88.05% 11.95% SSI 195 65.12% 34.88% Concurrent 52 56.83% 43.17%
22
Total unbanked observations 466
Policy change likely to work against preferences 10.53% Do not see the value of having a bank account Do not trust banks Banks do not feel comfortable or welcoming
Ambiguous 66.68% Do not have enough money to need a bank account Don't know/refused/nonresponse Write-in other response None of the reasons listed Service charges of bank accounts are too high Bounced too many checks or had too many overdrafts There are language barriers at banks Do not write enough checks to need a bank account Could not manage or balance a bank account Couldn't pick just one main reason Do not know how to open a bank account
Policy change likely to expand choice set 22.79% In process of opening an account within two weeks The bank closed my account Minimum balance requirement at banks is too high There is no bank near home or work Banks have inconvenient hours Do not have the proper documents to open a bank account Credit problems Banks do not offer needed services like check cashing Banks take too long to clear checks
Total 100.00%
Table 4. Payment Recipients' Main Reasons for Being Unbanked
Responses within categories are ranked by descending frequency.
23
VariableNumber of
observations
Nonbank check
cashingNonbank
money orders
Experience using prepaid
debit cards
All payment recipients 8,309 8.50% 26.83% 7.82%
OASDI 7,377 7.14% 23.91% 7.22%SSI 615 19.45% 46.53% 13.11%Concurrent 317 14.53% 47.81% 9.63%
Disability payment 1,693 17.07% 43.06% 11.76%All other payments 6,616 6.18% 22.45% 6.76%
Unbanked 466 28.31% 52.93% 10.93%Banked 7,843 7.17% 25.08% 7.61%
Recession income loss 2,388 9.65% 30.12% 9.29%Gain or neutral 5,921 8.04% 25.51% 7.23%
Age 0-17 600 20.00% 42.64% 15.06% 18-64 2,114 13.66% 37.62% 10.06% 65 and over 5,595 5.14% 20.76% 6.10%
Head did not complete high school or GED 3,487 8.94% 28.11% 6.50%Head completed high school or GED 4,822 8.18% 25.89% 8.79%
Non-metropolitan 2,183 7.42% 31.16% 6.73%Metropolitan 6,126 8.78% 25.69% 8.11%
Receive own payment 7,296 6.99% 24.69% 7.21%Representative payee in household 726 19.23% 41.69% 12.57%Representative payee outside household 287 17.39% 40.58% 10.37%
Table 5. Proportion of Payment Recipients Using Alternative Financial Services
24
Sam
ple
Num
ber o
f O
bser
vatio
ns
Num
ber
Unb
anke
d O
bser
vatio
nsW
eigh
ted
%
Unb
anke
d
Num
ber o
f Ad
ult†
O
bser
vatio
ns N
umbe
r Wor
k-Pr
even
ted
Adul
t O
bser
vatio
ns
Wei
ghte
d %
W
ork-
Prev
ente
d Ad
ults
Num
ber
Long
itudi
nall
y W
ork-
Prev
ente
d Ad
ult
Obs
erva
tions
Wei
ghte
d %
Lo
ngitu
dina
lly
Wor
k-Pr
even
ted
Adul
ts1.
Fou
r rot
atio
n gr
oups
of J
anua
ry
CP
S m
atch
ed to
AS
EC
53,6
093,
471
7.62
%39
,714
4,14
810
.28%
N.A
.N
.A.
2. L
ongi
tudi
nally
mat
ched
to
prev
ious
/sub
sequ
ent A
SE
C o
nly
42,2
152,
129
7.63
%31
,575
3,32
410
.41%
2,01
16.
17%
3. A
dmin
istra
tivel
y m
atch
ed o
nly
47,7
812,
689
6.59
%36
,390
3,85
110
.50%
N.A
.N
.A.
4. L
ongi
tudi
nally
and
Adm
inis
trativ
ely
mat
ched
38,1
481,
661
5.12
%29
,324
3,10
410
.53%
1,89
76.
33%
Appe
ndix
Tab
le 1
. Cha
ngin
g U
nban
ked
Prop
ortio
ns U
sing
Dat
a Su
bset
s w
ith D
iffer
ent D
isab
ility
Mea
sure
s
Not
e: W
e us
e sa
mpl
e 3
in th
e an
alys
is.
† Ad
ults
are
def
ined
as
age
19 a
nd o
lder
.
25
Variable All People Banked Rep. SE Unbanked Rep. SE
Number of observations 47,781 45,092 - 2,689 -Weighted percent of population 100.00% 93.41% - 6.59% -
All payment recipients 18.18% 18.24% 0.19% 17.32% 1.01%
Program OASDI 15.87% 16.41% 0.18% 8.25% 0.71% SSI 1.55% 1.22% 0.08% 6.18% 0.50% Concurrent 0.76% 0.61% 0.05% 2.90% 0.39%
Type of payment Disability payment 3.86% 3.42% 0.12% 10.08% 0.68% All other payments 14.31% 14.81% 0.12% 7.25% 0.68%
Work-limited adult observations 37,038 35,335 - 1,703 -Work-limited 10.4% 9.7% 0.2% 21.3% 1.2%
Pre-recession household income $56,274.87 $59,135.27 $853.20 $15,718.94 $813.71
Recession income change 90th percentile 77.0% 73.3% - 192.2% - 75th percentile 29.0% 28.5% - 46.3% - Median 10.3% 10.3% - 5.8% - 25th percentile -6.8% -5.5% - -42.2% - 10th percentile -55.9% -51.6% - -99.3% -
Age 0-17 23.6% 22.6% 0.1% 37.6% 1.1% 18-64 62.9% 63.4% 0.1% 56.6% 1.0% 65 and over 13.5% 14.0% 0.1% 5.8% 0.6% Total 100.0% 100.0% - 100.0% -
Household size 3.30 3.27 0.02 3.70 0.08Head completed high school or GED 88.36% 90.30% 0.25% 60.88% 1.95%Non-metropolitan 16.18% 15.93% 0.61% 19.47% 1.74%
Table 1SE. Description of Banked and Unbanked Groups
26
Varia
ble
(rep
licat
ed s
tand
ard
erro
rs b
elow
)N
umbe
r of
obse
rvat
ions
Elec
tron
ic
paym
ent
Pape
r che
ckR
ecei
ve o
wn
paym
ent
In h
ouse
hold
Out
side
ho
useh
old
Ban
ked
Unb
anke
d
All p
aym
ent r
ecip
ient
s8,
309
90.4
1%9.
59%
87.1
6%9.
35%
3.49
%93
.72%
6.28
%
OAS
DI
7,37
792
.72%
7.28
%91
.13%
6.84
%2.
03%
96.5
8%3.
42%
Rep
licat
ed s
tand
ard
erro
r0.
38%
0.38
%0.
47%
0.40
%0.
21%
0.31
%0.
31%
SS
I61
569
.53%
30.4
7%53
.46%
32.6
8%13
.86%
73.7
4%26
.26%
2.03
%2.
03%
2.36
%2.
11%
1.56
%2.
03%
2.03
%C
oncu
rren
t31
784
.90%
15.1
0%72
.74%
14.2
6%12
.99%
74.7
6%25
.24%
2.48
%2.
48%
2.81
%2.
24%
1.96
%2.
98%
2.98
%
Dis
abilit
y pa
ymen
t1,
693
83.0
1%16
.99%
67.8
1%21
.51%
10.6
8%82
.82%
17.1
8%1.
07%
1.07
%1.
18%
1.12
%0.
83%
1.10
%1.
10%
All o
ther
pay
men
ts6,
616
92.4
1%7.
59%
92.3
8%6.
07%
1.55
%96
.66%
3.34
%0.
40%
0.40
%0.
47%
0.41
%0.
20%
0.35
%0.
35%
Unb
anke
d46
669
.14%
30.8
6%65
.06%
18.0
6%16
.88%
--
2.78
%2.
78%
2.48
%2.
09%
2.00
%B
anke
d7,
843
91.8
4%8.
16%
88.6
4%8.
77%
2.59
%-
-0.
39%
0.39
%0.
50%
0.44
%0.
23%
Rec
essi
on in
com
e lo
ss2,
388
90.5
7%9.
43%
85.1
5%11
.89%
2.96
%94
.68%
5.32
%0.
78%
0.78
%1.
00%
0.95
%0.
47%
0.69
%0.
69%
Gai
n or
neu
tral
5,92
190
.35%
9.65
%87
.96%
8.33
%3.
70%
93.3
3%6.
67%
0.49
%0.
49%
0.51
%0.
43%
0.29
%0.
50%
0.50
%
Age
0-
1760
072
.77%
27.2
3%12
.16%
77.9
0%9.
94%
87.3
8%12
.62%
2.40
%2.
40%
1.55
%1.
94%
1.45
%1.
81%
1.81
%
18-6
42,
114
86.0
5%13
.95%
81.2
6%11
.13%
7.60
%87
.20%
12.8
0%0.
86%
0.86
%0.
88%
0.73
%0.
61%
0.86
%0.
86%
65
and
ove
r5,
595
94.1
8%5.
82%
98.1
8%0.
69%
1.13
%97
.02%
2.98
%0.
40%
0.40
%0.
21%
0.12
%0.
16%
0.34
%0.
34%
Hea
d di
d no
t com
plet
e hi
gh s
choo
l or
GE
D1,
592
89.5
1%10
.49%
89.1
5%5.
95%
4.90
%89
.67%
10.3
3%0.
59%
0.59
%0.
67%
0.53
%0.
41%
0.76
%0.
76%
Hea
d co
mpl
eted
hig
h sc
hool
or G
ED
6,71
791
.08%
8.92
%85
.69%
11.8
5%2.
45%
96.6
9%3.
31%
0.54
%0.
54%
0.63
%0.
59%
0.28
%0.
41%
0.41
%
Non
-met
ropo
litan
2,18
387
.22%
12.7
8%86
.05%
10.9
2%3.
02%
92.7
5%7.
25%
1.01
%1.
01%
1.18
%1.
17%
0.44
%1.
02%
1.02
%M
etro
polit
an6,
126
91.2
6%8.
74%
87.4
5%8.
94%
3.61
%93
.98%
6.02
%0.
44%
0.44
%0.
54%
0.46
%0.
30%
0.44
%0.
44%
Rec
eive
ow
n pa
ymen
t7,
296
92.0
9%7.
91%
--
-95
.31%
4.69
%0.
39%
0.39
%0.
35%
0.35
%R
epre
sent
ativ
e pa
yee
in h
ouse
hold
726
79.9
4%20
.06%
--
-87
.88%
12.1
2%2.
01%
2.01
%1.
63%
1.63
%R
epre
sent
ativ
e pa
yee
outs
ide
hous
ehol
d28
776
.67%
23.3
3%-
--
69.6
4%30
.36%
2.90
%2.
90%
3.39
%3.
39%
Rep
rese
ntat
ive
paye
eTa
ble
2SE.
Soc
ial S
ecur
ity P
aym
ent M
etho
ds
27
Table 3SE. Proportion of Payment Recipients Banked Variable (replicated standard errors below)
Number of observations Banked Unbanked
All electronic payment recipients 7,546 95.20% 4.80% Replicated standard error 0.35% 0.35% OASDI 6,861 97.25% 2.75% 0.27% 0.27% SSI 420 77.51% 22.49% 2.26% 2.26% Concurrent 265 77.95% 22.05% 3.06% 3.06% All paper check recipients 763 79.79% 20.21% 2.05% 2.05% OASDI 516 88.05% 11.95% 2.32% 2.32% SSI 195 65.12% 34.88% 4.02% 4.02% Concurrent 52 56.83% 43.17% 8.37% 8.37%
28
Variable (replicated standard errors below)
Number of observations
Nonbank check
cashingNonbank
money orders
Experience using prepaid
debit cards
All payment recipients 8,309 8.50% 26.83% 7.82%
OASDI 7,377 7.14% 23.91% 7.22%Replicated standard error 0.45% 0.74% 0.48%SSI 615 19.45% 46.53% 13.11%
2.02% 2.46% 1.71%Concurrent 317 14.53% 47.81% 9.63%
2.35% 3.52% 1.92%
Disability payment 1,693 17.07% 43.06% 11.76%1.16% 1.60% 1.08%
All other payments 6,616 6.18% 22.45% 6.76%0.43% 0.75% 0.47%
Unbanked 466 28.31% 52.93% 10.93%3.12% 3.22% 2.19%
Banked 7,843 7.17% 25.08% 7.61%0.44% 0.73% 0.48%
Recession income loss 2,388 9.65% 30.12% 9.29%1.03% 1.44% 0.91%
Gain or neutral 5,921 8.04% 25.51% 7.23%0.47% 0.87% 0.52%
Age 0-17 600 20.00% 42.64% 15.06%
2.71% 3.04% 1.87% 18-64 2,114 13.66% 37.62% 10.06%
0.94% 1.30% 0.90% 65 and over 5,595 5.14% 20.76% 6.10%
0.42% 0.75% 0.49%
Head did not complete high school or GED 3,487 8.94% 28.11% 6.50%0.70% 1.08% 0.59%
Head completed high school or GED 4,822 8.18% 25.89% 8.79%0.61% 1.00% 0.67%
Non-metropolitan 2,183 7.42% 31.16% 6.73%0.86% 1.83% 0.79%
Metropolitan 6,126 8.78% 25.69% 8.11%0.55% 0.81% 0.58%
Receive own payment 7,296 6.99% 24.69% 7.21%0.41% 0.71% 0.47%
Representative payee in household 726 19.23% 41.69% 12.57%2.21% 2.67% 1.57%
Representative payee outside household 287 17.39% 40.58% 10.37%2.93% 3.57% 2.21%
Table 5SE. Proportion of Payment Recipients Using Alternative Financial Services
