Occam's the man

Heh. From 7% of Households Do Not Have a Bank Account. Why? by Cheryl Russell.

The food desert fad was a temporary speculation, fueled by misdirected do-goodism among the self-anointed chattering classes who, incorrectly, speculated that populations demonstrating high rates of obesity must be fat owing to an absence of grocery stores (particularly those selling fresh produce.) The argument was that these people lived in food deserts.

Wrong on two accounts. It took the better part of a decade and some hundreds of millions of wasted federal dollars before it as discovered that people were obese because of their own bad eating habits and poor lifestyle choices in terms of exercise. In addition, it was discovered that the early maps showing swathes of urban food deserts were simply incorrect. There were grocery stories everywhere.

I had missed it but apparently there is a parallel line of anemic thinking in financial circles - the unbanked, people without an account at a bank, must be living in a banking desert. From Russell.

Seven percent of U.S. households are "unbanked," meaning they have no bank or credit union account. Researchers at the Federal Reserve Bank of New York examined the geography of the unbanked to determine the reason why—in particular, they wanted to know whether households lack bank accounts because they live in a "banking desert." Similar to food deserts (neighborhoods without grocery stores), banking deserts are neighborhoods without physical banks. In the study, the researchers defined a neighborhood as a census tract and the area within 10 miles of the census tract's center.

Several interesting findings emerged from the study. 1) Most banking deserts are in actual deserts. "Our map of U.S. banking deserts reveals that most are not in urban areas, where financial exclusion may be endemic, but in actual deserts—largely in the sparsely populated rural West," explain the researchers. 2) There is no correlation between the percentage of a state's population that lives in a banking desert and the share of the population that is unbanked. The physical location of banks, then, does not explain the unbanked. The results of a 2015 FDIC survey, cited by the researchers, also suggests physical location of banks has little to do with the unbanked. In the survey, the unbanked were asked why they did not have a bank account. Only 2 percent said it was because of "inconvenient location." More important reasons were "not enough money," "don't trust banks," and "account fees too high."

This is not a new issue. My wife did her dissertation on unbanked communities in Philadelphia in the mid-1980s. Why were they unbanked? Because the banking services did not meet their needs in terms of cost and confidence. Not because there were too few banks.

But I love that line from Russell - "Most banking deserts are in actual deserts."