Millions of Americans Who Avoid Banks Offer a Peek at the Underground Economy

Much of the country buys, sells, and makes a living outside official scrutiny


What's your preference when making purchases? Do you still swipe a card? Do you prefer to pay with an app on your phone? Or are you one of those brave trendsetters trying to make a go of it by using bitcoin for day-to-day purchases?

It's a changing world, and an increasingly digital one. Money often seems to be embodied more by the brisk transfer of electronic signals than by the anonymous exchange of paper notes and metal coins. Denmark actually plans to shut down the printing presses (the physical ones—don't expect the money supply to suffer any restrictions) and some economists think everybody else should follow suit.

Who uses the stuff anymore, anyway? Right?

Well, except for that vast chunk of the population that actually prefers cash as the primary—or even exclusive—means of exchange. Many Americans happily and quietly avoid banks and trendy purchasing choices in favor of old-fashioned paper money. Lots of business gets done that way, though nobody knows just how much—which may be the whole point.

Last week, the Albuquerque Journal pointed out that over a third of households in the city either avoid banks entirely (the "unbanked") or else keep a checking account but do much of their business through cash, check-cashing shops, pawn shops, money orders, and other "alternative financial products" (the "underbanked").

A few weeks earlier, the Kansas City Star reported a similar local situation, with 12 percent of households and 45 percent of African-American families completely avoiding banks.

In both cities, the phenomenon is growing.

Nationally, according to the Federal Deposit Insurance Corporation (FDIC), 7.7 percent of U.S. households are unbanked and 20 percent are underbanked. Another 5.3 percent are unknown. Not having enough money to open an account is an understandable and widely cited reason to not do business with banks. Use of banks rises along with income—though 5 percent of households making $30,000-$50,000 are still unbanked and 13 percent of those making over $75,000 remain underbanked. Maybe that's because 34.2 of respondents to an FDIC survey say they don't like or trust banks, and another 30.8 percent find bank fees too hefty or unpredictable to tolerate. Twenty-six percent cite privacy as a reason for keeping clear of banks – bankers say that increased federal reporting and documentation requirements drive many customers away.

"A lot of people are afraid of Uncle Sam," Greg Levenson, president and CEO of Southwest Capital Bank, told the Albuquerque Journal.

So, many people operating outside the traditional financial system avoid the institutions by choice. They'd rather deal in cash, and use prepaid cards when plastic is an absolute must.

And deal they do. The unbanked may take a pass from traditional financial institutions, but that doesn't mean they're refraining from buying, selling, or making a living.

"A third of our population unbanked and underbanked negatively impacts consumer spending, is a clear sign of alienation and indicates the extent of our underground economy," David Seely, president and CEO of Kirtland Federal Credit Union, told the Journal.

Edgar L. Feige an emeritus professor of economics at the University of Wisconsin–Madison, agrees. His research suggests that the U.S. government wildly overestimates the amount of currency circulating overseas; that domestic holdings of cash dollars add up to $2,300 for every man, woman, and child in the country. "[L]arge amounts of cash are employed to undertake transactions that individuals and firms prefer to hide from the government either to avoid taxes, regulations or punishment for illegal activities. Cash, being an anonymous medium of exchange leaving no paper trail, is the logical choice for undertaking such transactions."

At the St. Louis Federal Reserve Bank, Yi Wen, an assistant vice president and economist, and Maria A. Arias, a research associate, have also commented on the "private sector's dramatic increase in their willingness to hoard money instead of spend it" in the official economy.

Unsurprisingly, Feige's estimate that up to 23 percent "of total reportable income may not properly be reported to the IRS" is larger than the official number.

Further evidence that the unbanked are not thoroughgoing conscientious objectors to economic activity lies in the recent disconnect between official employment and income numbers on the one hand, and the money passing through people's fingers on the other.

"Despite the sharp drop off in the labor force participation rate, consumer spending has nevertheless continued to surge," wrote Bernard Baumohl, chief economist at the Economic Outlook Group, two years ago. "One explanation is that many of those who have left the labor force since the last recession have managed to earn income in the shadow economy and their spending still shows up in the official retail sales and personal consumption data."

It's a fair bet that those who "have managed to earn income in the shadow economy" and want to keep their income unreported to the feds and undiminished by fees are heavily overrepresented among the unbanked.

In July of this year, Baumohl reported that robust economic activity and weak official employment and income figures continue to be divorced from one another.

It's good news that there's more prosperity out there than we measure with official figures. That many Americans steer clear of banks doesn't mean that they're all suffering. A good number of them are making a living under the radar, and choosing to shield their money from prying eyes and high fees the same way.

There are costs to avoiding banks, just as there are costs to working off the books. Cashing checks can be expensive, bank accounts are often safer than shoeboxes, and it's difficult to take out loans to build a business are make a big purchase when you have no financial history to speak of.

"Lacking access to government-insured savings or opportunities to build credit, they not only incur risk of theft, fraud and loss, but by using alternative financial service (AFS) providers such as check cashers or payday lenders, they also become prey to expensive predatory products and services that make it harder for them to achieve financial security," the Pew Health Group scolded in a report criticizing those who spurn financial officialdom.

But most people aren't idiots. When they avoid expensive, snoopy financial institutions, it's because they've decided the benefits outweigh the costs. And since the rest of us have very little idea of what they're all up to—one of those benefits, for sure—who are we to say they're wrong?

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  1. Dank

  2. Since the government views all wealth as belonging to it, and then it generously allows citizens to hold onto a certain percentage after it gets its cut, such an underground economy must be driving politicians crazy.

    It won’t be long before paper money is outlawed. They’ll use fighting terror and portraits of old dead white men as the official excuses, no doubt. And for once, the news cycle phrase “women and minorities hardest hit” will actually apply.

    1. For once the speculative future tense could be dispensed with. After all, it is anything but convincing.

  3. Anarchy! Agora! Action!

    1. ARRRR !!!!!

      1. Four days to go, matey. Four days.

    2. Murder already is legal. All you need nowadays is to be declared an enemy combatant and all bets and bag limits are off. In 1912 all anarchists were barred entry as exactly that for years. Surely a less stupid idea can be drawn up.

  4. I think this is a great example of why taxes should be based off of what we spend. Not what we earn or hold.

    1. Of course. Because that way the Davos crowd can keep spending money there and no one will even know that they already own the government.

  5. I’m gonna guess that the vast majority of the unbanked/underground are not choosing that because they want to avoid taxation. They are doing it because banks screw them – and the government does not offer any settlement system outside the crony-driven banking system.

    1. Like the banks have a choice? Look up the fine amounts simply demanded–much like bribes–from HSBC and Bank of America lately… Paper money inflation makes savings worthless unless you can get banks and the exchanges to protect against gubmint counterfeiting and looting. Fortunately there IS a political party with the guts to demand repeal of the 1848 communist individual income tax.

      1. Banks are the freaking victims here? Yeesh what a useful idiot. Banks get a monopoly over the issuance of money – and ownership of the entity that produces the money. They get a monopoly in the court system that their product is the ONLY thing that can settle contracts and disputes. They get massive bailouts from current/future generations every time they commit fraud. They get to manipulate the business cycle through their control over the price of money and credit – and indeed they get to create the business cycle since virtually all business cycles are caused through that mispricing of credit/money. They got to destroy the manufacturing sector in the US because products of manufacturing competed with the desire of banks to have their product be the international reserve currency.

        And they are the freaking victims.

        1. Don’t be stupid. Crony capitalism works because governments limit choices. Businesses, and banks in particular, simply realize it’s easier to manipulate government than it is to avoid government. Sure, it’s a vicious cycle, feeding back into itself, but it starts with governments, not businesses.

          1. It does not start with ‘governments’ or ‘businesses’. It starts with Type A individuals who because of their drive will always end up controlling every institution/organization/association. Most people are Type B’s who just don’t care (and won’t work that hard) once their survival/family needs are met. Type B’s ‘go along’. Type A’s run the place – whether its govts/banks/whatever. The second those organizations meet; they will collude – just as Adam Smith pointed out. Since that room is full of Type A’s; they ain’t gonna collude against themselves. They are gonna collude against all the lazy-ass Type B’s who aren’t in the room – by tilting the playing field away from messy ‘competition’ towards predictable ‘efficiency’ (the favorite ‘progressive’ term back in the day – whether by Morgan and Rockefeller creating trusts or by TR and Wilson doing gummint stuff). And they will tilt the playing field to the point where the Type B’s have to choose between picking up pitchforks and ‘going along’. And some new Type A will then be the ‘vanguard voice’ of the angry Type B’s – and thus gain entrance in the room full of Type A’s deciding how the world will be run and for whose benefit.

            99% of political discourse today – including most libertarian – is about nothing more than picking which poison is better. A world run by Type A’s in govt or by Type A’s in biz or by Type A’s in acad or by Type A’s in the milit or whatever.

            1. You’re a friggin’ lunatic. You know that, right?

            2. Seriously? You think Type A’s inevitably and necessarily engage in coercion? And Type B’s don’t? Harold Falcon may be right about you.

  6. On a recent trip to Europe, the spousal unit and I decided to make almost all of our purchases using cash, rather than credit/debit cards. Several trips in the past I’ve had one or more of my credit cards’ details copied and then used to attempt purchases after I’d returned to Canada.

    There’s no personal info to copy with cash. Anonymity of the transaction is a perfectly legit reason to use physical. There’s still some weak points (I had to use a debit card to withdraw large amounts of cash from ATMs, after all), but it was nevertheless superior to flashing cards everywhere we went.

    And we were secure in the knowledge that, no matter where we went, no one would refuse cash for payment.

    1. The classic problem with cash and other physical money is that you’re exposed to pickpocketers and robbers.…..-help.html

      There are many more articles/videos of brazen robberies of cash at European ATMs out there. The ATMs have become honey pots that the robbers stake out in teams. All it takes is one robber to stab or shoot you during a robbery, and the benefits of carrying cash are wiped out.

      The last time my wallet was stolen, I lost $60 in cash but was able to shut down the credit cards before the thief attempted to use them (and attempt they did, according to the bank). Even if they had succeeded in charging on the card, the losses would have been covered by VISA/Mastercard. This is one reason for the high fees–we cardholders are essentially paying insurance against future theft/fraud. I’m okay with that part of the fees.

      I’m not sure I’d travel to Europe at all now given the migrant turmoil over there, but if I went, I probably would not use cash at all (so as to avoid having to go to ATMs) and would use a low-spending-limit credit card with full fraud coverage.

      1. Fortunately with digital cash, all you are exposed to is identity thieves, hackers, bank runs and financial crises, and soon negative interest rates and excessive fees off the top. All of which operate on the basis that invisible robbery isn’t really even robbery at all.

        Hell I would much prefer REAL coins – that you don’t even need to use ATM’s for because once they are minted they don’t need to head back to be deposited into banks for BS bank pseudocash in return

        1. OT JFree. You know those ridges on the outside of old coins ? Those are there to let you know if someone has been shaving them. =)

          1. Sure. But they can only clip that one coin. They aren’t stealing ALL of your assets.

            That said – that coin stuff is why ‘gold standard’ is really a Quixotic windmill. Even if it was a ‘gold coin standard’ – all those coins quickly end up deposited in banks and the standard simply becomes a ‘supposedly-gold-backed-banknote standard’. With all the bank runs, bank fraud, and now digital thievery that exists today with a fiat standard.

      2. but… you still had cash in your wallet. cash still has a place, even it is just your emergency fund (enough for a cab, or tow). cash on vacation can be a good idea, assuming 1) you don’t go to any random ATM in a secluded neighborhood you don’t know, 2) make yourself a poor target for pick-pockets (might not be 100% achievable, but there are guidelines). even if you will not be held accountable to the charges, having your card shut down because someone electronically stole it, while in a foreign place, can be pretty darn inconvenient.

  7. Denmark getting rid of cash is not a surprise, most people there have a national bank card (DanKort) tied to their debit accounts, which is accepted pretty much everywhere in the kingdom.

    Of course most Danes use this method of payment for groceries and gas.

    What they use cash for is to pay their plumber, babysitter, contractor, etc.

    Direct bank transfers between Danes is somewhat popular, but without cash it becomes nearly impossible to exchange goods and services between regular people.

    1. Same is true in Brazil, where a 32-looter-party kleptocracy is mandated by coerced voting and government subsidies so the 32 looter parties to run Orwellian telescreen agitprop on an endless roll…

  8. The government solution to this won’t be to eliminate some of the hassles and “welcome back” many of the objectors. No, the government solution will be to crack down even harder on the dissidents and make it even harder for them to exist outside the panopticon.

  9. Fact: there are no political solutions for _any_ problem, never have been, never will be; not even “Ron Paul”, or “libertarian” solutions.

    Fact: As long as you believe that political solutions really do exist, dear reader, you will remain firmly ensconced inside “the Matrix”, i.e. exactly where the Obama’s, Trumps, Sanders , Pauls and all the rest of them want you to be:-)

    Fact: Reason is an “inside the matrix” site full of “inside the matrix” writers working steadfastly to keep you “inside the matrix” by encouraging yours and others silly delusions of political “solutions” to yours, or the country’s, or the world’s problems, i.e. exactly where the Obama’s, Trumps, Sanders , Pauls and all the rest of them want you to be:

    Onebornfree Personal Freedom & Problem-Solving Services
    Problem Solving/Personal Freedom Consulting for “libertarians” etc. 20+ years.

    1. Hey onebornfree solve this problem. =)

    2. I thought The Weathermen had gone out of style.

  10. A third of our population unbanked and underbanked negatively impacts consumer spending

    Seems to me like it only impacts official reporting of consumer spending…

  11. The same thing happened in 1930-1933. Mystical bigots with their fancy new prohibition laws and starry-eyed socialists with their freshly minted communist manifesto income tax were all Herbert Hoover needed to completely destroy the economy. The unprecedented 1930 drop in consumption was the path of survival to keep from ending up like Manly Sullivan, The Big Four, Al’s brother Ralph Capone, their treasurer Guzik and ambassador Frank Nitti. Today the looters-by-law force banks to memorize know-your-customer rules and snitch any and all to evade gargantuan fines over paperwork! Reading a single page out of FATF, Treasury and IRS Orwellian fantasy papers is a must for getting a handle on how out of hand this has gotten. Adam Smith would have died of horror on any page of the March 2015 UNSCR Narcotics Report. Basically, if you do not force the IRS to accept money on the off chance they might want it, you are a terrorist enemy jihadist plotting to attach New York and the Pentagon. This is America?

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  13. How do these “unbanked” and “underbanked” people make large purchases?
    Because as soon as you plunk down more than ten grand, Old Uncle Sam has to be notified, since only drug dealers have that kind of paper.

    1. They don’t plunk it all down at one time because they don’t usually have it all to plunk. The majority of the “unbanked” and “underbanked” are buying their big-ticket items from rent-to-own shops like Rent-A-Center, Aaron’s, Rent-way, and their local ‘buy here pay here’ car lot.

  14. Over five trillion dollars in cash is going through the US economy each year. Much of it is in illegal drug money, nobody pays their dealer with a money order. Professionals are glad to take cash as well as politicians for a favor. An estimated billion dollars a day is leaving the US in suitcases bound for offshore banks. Another trillion dollars is being hidden under mattresses. If cash were declared illegal the national debt would be paid off.

  15. * since only drug dealers have that kind of paper — ha I’m no drug dealer but I’ve been one of te unbanked for a couple years now. I gave banks enough of my money with the bailouts. I have a really heavy safe with my firearms, cash, and other valuable in it. As far as large purchases go they get reported if the seller reports it if they don’t it doesn’t I don’t care either way. Either way I have a steady job and ways to prove it was legitimately earned (tax returns W2s etc), not that I would bother to if they (the government) asked. I’d simply tell them to fuck off or eat 00 buckshot the choice would be theirs. They can’t jail or kill every productive citizen or soon enough they themselves would have to work.

  16. Correction I’m under banked since I have retirement accounts, gotta stave off inflation somehow, just don’t see any point in keeping money in a savings acct that will lose money yearly due to the combo of inflation and near 0% interest

  17. Having a criminal IRS snatch 80 grand out of your bank account without a word of notice or due process has a tendency to turn a person against banks, which are nothing more than an arm of government.

    Anyone who screws this criminal government and its criminal banks out of anything is a hero and a patriot.

  18. You know, it might be very good from a libertarian perspective if governments did stop printing currency. The unbanked and underbanked would have to choose an alternative currency to use, and thus increase the possibility of getting government out of the production of money monopoly altogether.

    Of course, it probably wouldn’t be a pleasant or non-violent change, but it would still be necessary, and would reinforce the point that money is, in fact, determined by the people who use it, not by governments.

    1. Modern money is not mainly created by governments. It is created by banks making loans. Govt certainly prints currency and mints coins. But all that combined is pretty much nothing compared to debt.

      Wanna compare the two? Empty your wallet of coins and notes and add it all up. Compare that to the amount of money in your bank accounts or other accounts that you could, via some digital card, turn into cash-on-demand. The relative size of those two is a perfect indicator of whether you are in favor of ‘going underground’ or the money status quo. And oddly – near 100% of the former is actually produced by government.

      1. Relevance to my comment?

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  20. I think that we are made to play in this consumption game. And I prefer to have money in cash or on account for saving purposes. I can explain this with simple though that I can do just nothing when hackers decide to attack personal data and break the whole financial system. From one side this can be great, because all information about borrowers will be lost, but a lot of people will also lose their money and almost all means for living. In some cases I prefer to find best UK payday loans review to choose the most appropriate short-term loan when I need extra money, instead of dealing with long-term obligations.

  21. I think that we are made to play in this consumption game. And I prefer to have money in cash or on account for saving purposes. I can explain this with simple though that I can do just nothing when hackers decide to attack personal data and break the whole financial system. From one side this can be great, because all information about borrowers will be lost, but a lot of people will also lose their money and almost all means for living. In some cases I prefer to find best UK payday loans review to choose the most appropriate short-term loan when I need extra money, instead of dealing with long-term obligations.

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