To everyone else at the market, Alice is just a mom, shopping for groceries with her ten- year old daughter. No one knows her purse contains all the money she has in the world — $12 and with it, she needs to buy two weeks’ worth of food and laundry detergent.
No one knows all the times they eat a cold dinner by candlelight because the electricity is shut off for non-payment, or that the county has rejected her application for childcare assistance and food stamps because she does in fact, make $95 over the yearly income limit.
By the numbers, Alice’s single-parent family fits within the classification of “lower-middle class.” But the threat of falling into “situational poverty” looms large every day. Situational poverty happens in a flash. In one fell swoop, an unexpected crisis wipes out limited financial resources, you fall below the poverty line and lose access to basic necessities. Reasons for this include underemployment, loss of employment, a medical emergency, unexpected vehicle repairs, and even accumulating late fees for mismanaged finances.
Like many middle-class single mothers, Alice secretly experiences frequent falls into situational poverty. It isn’t uncommon for her bank account to be nearly emptied by the third week of each month, leaving almost nothing for food and gas until she’s paid again. When payday finally arrives, she immediately spends money on rent, utilities, food and gas to regain a sense of security. And yet, this vicious cycle repeats month after month, year after year, leaving Alice in a constant state of need, instability, and desperation.
“Down the Rabbit Hole”
So worn down is she by the struggle to exist, she defines herself as poor; and decides the world is a place of scarcity. Going to work becomes a chore and her performance on the job declines. She keeps her hardships to herself as the shame she feels is too gripping to share with anyone. But Alice’s bank certainly has clear snapshot of exactly what’s going on. Bank statements don’t lie. Alice’s insufficient funds and bounced checks have mounted. The bank doesn’t care that Alice did indeed try to cancel automatic payment for her gas and water bill because she knew she wouldn’t have the money to cover it. Somehow the auto payment went through anyway and now, unbeknownst to Alice, she’s overdrawn by $81.40. Hours later, Alice goes to the grocery store to purchase a loaf of bread and can of soup, but her debit card is declined. She immediately heads to the bank to speak with the manager and explain her situation. ‘It’s too late’, the bank manager says, ‘No more exceptions; we’ve closed your account, Alice.’ She is officially unbanked.
Financial failures, fears, and inadequacies like Alice’s run rampant. In fact, One out of every 13 households in the United States lives without a checking or saving account. Can you imagine living without access to basic banking services? From running daily errands to dealing with medical or financial emergencies, going about one’s day to day life without a checking or savings account is not only inconvenient, it’s costly. Individuals without them resort to alternative financial help like check-cashing services, payday loans, pawn shop loans, and rent-to-own agreements, all of which incur exorbitant fees, trapping them in a hideous cycle of further debt. To date, more than 9 million households in the United States are trapped in this catastrophic downward spiral to poverty.
But let’s get back to Alice. The bank has closed her account and now she has no place to deposit her paycheck. To cash a paper check she’ll need to pay a fee she can ill afford. And with so many businesses not taking cash, she has even more to worry about. However, Alice, like 6 billion other people in the world, does have a mobile phone.
Sadly, even in our hyper-connected digital world, today’s commercial environment still requires people with mobile phones to have a bank account in order to send and receive payments. Services like Venmo, PayPal, and Payoneer aren’t compatible with the unbanked population, and services that are, such as Western Union and Ria, are exploitatively expensive. Alice, however, calls her supervisor at work and schedules an early-morning meeting to discuss her financial situation and need for help.
“Why, sometimes I’ve believed as many as six impossible things before breakfast.”
Much to Alice’s surprise, her supervisor and the head of HR compassionately listen to her story. What’s more, they excitedly share a new payroll solution available company- wide at no cost to them or any employee, including Alice. This alternative to direct deposit or a paycheck is a pre-paid electronic pay card, a debit card, if you wish, that the employer funds with the amount of the employee’s net pay. The employee then accesses his or her pay by using the card to make purchases or withdraw cash. Better still, the latest technology also allows employees to access to their earned wages on demand. Now, if Alice needs immediate access to funds, she has her wages available in real time. Pay cards are not only for unbanked employees. Recent studies show some employees split their pay among traditional bank accounts and payroll debit card accounts as a form of financial management. Split deposit has long been recognized as a means of promoting savings by organizations such as the Consumer Federation and NAC. In general, pay cards work in a fashion like any other debit cards. They are pre-funded, host-based, stored-value cards that the employee can use to access his or her net pay at an automated teller machine (ATM) or a bank, or to make point-of-sale (POS) purchases. The employer funds the cards in the same way that it would fund direct deposit of payroll, subject to the NACHA rules.
Pay on demand benefits both employer and employees. Benefits for employers include reduced costs for manual checks, lost and stolen checks, stop payment orders, fraudulent cashing of duplicate checks, paycheck production and handling, and bank reconciliation fees. There’s enhanced efficiency by eliminating paper paychecks and using electronic pay statements. All employees, regardless of having a banking relationship or not, are eligible for electronic funds transfer. It’s also a simple way to boost morale. Lastly, 47 percent of Gen Z workers and 31 percent of millennials say they would turn down a job if they couldn’t choose their method of payment, according to ADP’s proprietary research, “Pay cards” By not including alternatives to checks and bank direct deposit, organizations risk missing out on talent.
Employees benefit from reduced costs by eliminating check cashing fees. They enjoy an increased independence by eliminating the need to ask relatives or friends to cash checks or pay their bills. Employees can’t take on debt with stored value debit cards, which may improve their credit status. There’s also Increased safety by obtaining only the cash the employee needs rather than having to cash the entire paycheck. It’s easy to use and employees are also secure because a lost or stolen card can be replaced with its full remaining value. ATM availability means there’s virtually no time or geographic limitations on access to funds. It’s simple to make in-store, online and telephone purchases, set up recurring bill payments and even make airline, hotel and rental car arrangements.
Alice has hope. She may be unbanked but she’s not unemployed or without access to electronic money solutions. With careful budgeting and access to earned wages on demand, she can focus on working harder to get ahead. Tonight, as Alice and her daughter shop for groceries they select a special treat. The powdered hot chocolate mix is on sale. Even better, it’s instant!