There are approximately 5.9 million‡ “unbanked” U.S. households, which means no one in the home has access to a checking or savings account at a bank or insured financial institution. Many of these households rely on financial entities outside of a traditional bank for their financial needs (for instance, check cashing or prepaid debit cards).

For these unbanked individuals, the barriers to a bank relationship can seem daunting, overwhelming and time-consuming to overcome. And financial jargon commonly used for financial services can be confusing. These challenges build up and impact how unbanked households view financial institutions, which in turn, limits their access to financial tools, tips and services.

The mindset of the unbanked

According to the FDIC Survey of Unbanked and Underbanked Households‡:

  • 40% of unbanked households don’t have enough money to meet minimum balance requirements for standard deposit accounts
  • 34% believe avoiding a bank provides more privacy
  • 33% don’t trust banks

All of these are contributing reasons for unbanked households to not open a bank account. While these concerns are understandable, a supportive bank partner can be an opportunity to attain financial empowerment.

What is financial empowerment?

Financial empowerment is the feeling of knowing you are in control of your finances and that they are not in control of you. You are able to look at your financial situation from a place of strength and perspective, not fear and doubt. Financial empowerment means you can build trust with a banker who supports you on your financial journey and you can feel confident in your financial decisions.

The importance of financial empowerment

Understanding your financial situation puts power back in your hands. When you know everything about the money you have coming in, going out and needed for your future, you can grow, develop and believe it is possible to make it through any financial challenge. Taking control of your finances in this way allows you to be prepare for future milestones, be less constrained by debt and set up the next generation for success.

Steps to financial empowerment

One of the first steps to feeling financially empowered is to understand your unique situation. For instance, a personal banker can walk you through a financial review. During this meeting, you’ll have the chance to document your income, calculate your monthly expenses, talk about your financial goals and discuss your personal needs.

Together with your banker, you can:

Establish a budget

Look at your monthly income and expenses and build a budget that works for you. There are many different budgeting methods you can choose from, such as the 50/30/20 method, pay-yourself-first method or the zero-based method.

  • The 50/30/20 method asks you to spend 50% of your annual income on your needs, 30% on your wants and the remaining 20% on your savings and paying off any outstanding debt. While this may seem complicated, it is a straightforward way to organize the money you have coming in and going out.
  • The pay yourself first method means taking a portion of your income and putting it towards your savings, retirement or emergency funds before you use it anywhere else.
  • The zero-based method involves creating a new budget each year, depending on your changing needs and expenses.

No matter the method you choose, it should make sense to you and how you need your money to work for you. Your budget will guide you in exactly how much money you need to cover common costs, timing for bills, ways to start saving, and how to analyze your spending.

Tackle your debt

Debt can amount in a variety of ways‡, from credit cards and personal loans to auto financing and student loans, but no matter what type of debt, it is important to have a plan to pay it down. Two ways you can tackle your debt are through using the snowball and avalanche debt payoff strategies.

  • The snowball strategy starts with you paying the minimum amount on all your bills, while also putting as many dollars as possible toward your smallest debt balance each month. Once the smallest balance is paid off, repeat the process with the next smallest debt balance.
  • The avalanche strategy asks you to pay the minimum due on all your bills and pay as much as you can on the balance with the highest interest rate. Once the balance with the highest interest rate is paid off, start paying more on the next highest interest rate debt.

The right strategy for you will depend on the amount of debt you have, as well as what it takes to keep you motivated to stick with the plan.

Begin adding to your savings

Now that you know how much money you can save, talk with your personal banker about opening a savings account. If you already have a savings account, setting up a regular contribution, like a monthly transfer, can be a great way to work toward your goals. It is recommended to have three to six months of living expenses in your savings account to help you withstand an unexpected financial event such as car trouble or illness.

Work toward your financial goals

In your financial review, share your hopes and dreams with your banker so you can create a plan to achieve your goals. A set budget will help you actively take steps to reach those goals like saving for retirement, making a large purchase or ensuring your family has what they need.

Check your financial plan annually

As you grow in your relationship with your bank, add an annual financial review to your calendar. It can be overwhelming to juggle your savings and budget along with the stresses of day-to-day life. Lean on your financial team to help you navigate different strategies that can support your financial goals.

Often, financial circumstances change over time due to life events or challenges, and your plan must reflect those changes. Never be afraid to ask for help, especially when it comes to your financial well-being.

Start down your own path

Financial empowerment gives you the ability to see your financial habits and to change your patterns if needed. A personal banker’s guidance can help you navigate your finances with confidence. The feeling that you are in control of your money means you can reduce your financial stress, quickly create plans to combat the unexpected, and help your family feel secure.

You do not have to organize your finances alone – find a personal banker you trust to help you improve your financial situation and begin the road to financial empowerment.

Learn how to better manage your money to build a stronger financial future for you and your loved ones through the Family Finances playlist on the UMB Financial Education Center.

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