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Banking relationships of lower-income families and the governmental trend toward electronic payment

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    Abstract

    In the past three years, the federal government and many states have lowered their costs of administering welfare and benefits programs by expanding the use of electronic payment. These initiatives promise to have their greatest significance, and meet their greatest challenge, among lower-income families, the demographic group with the lowest rate of bank account ownership and the least familiarity with electronic transactions. Although the payment programs do not require a banking relationship, the move to electronic transfer may change the financial practices of many recipients without a deposit account or with no banking relationship at all. For example, they may continue to obtain cash from check cashing outlets and grocery stores, but the attraction of a bank account may become heightened by a federal plan to make special accounts available at depository institutions primarily for the electronic transfer of federal payments. Moreover, the greater use of the banking system by lower-income families could harmonize with the emphasis that welfare reform has placed on asset-building, a goal that may be harder to achieve without the use of a bank account. This article examines the ways in which lower-income families obtain checking and credit services, the effects that the government move to electronic payment may have on these families and on depository institutions, and the promotional and educational efforts that may be needed to facilitate the move of the unbanked to electronic services.

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    File URL: http://www.federalreserve.gov/pubs/bulletin/1999/0799lead.pdf
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    Bibliographic Info

    Article provided by Board of Governors of the Federal Reserve System (U.S.) in its journal Federal Reserve Bulletin.

    Volume (Year): (1999)
    Issue (Month): Jul ()
    Pages: 459-473

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    Handle: RePEc:fip:fedgrb:y:1999:i:jul:p:459-473:n:v.85no.7

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    Keywords: Payment systems ; Electronic funds transfers ; Welfare;

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    Cited by:
    1. William H. Greene & Sherrie L.W. Rhine & Maude Toussaint-Comeau, 2003. "The importance of check-cashing businesses to the unbanked: racial/ethnic differences," Working Paper Series WP-03-10, Federal Reserve Bank of Chicago.
    2. Rebecca Haynes-Bordas & D. Kiss & Tansel Yilmazer, 2008. "Effectiveness of Financial Education on Financial Management Behavior and Account Usage: Evidence from a ‘Second Chance’ Program," Journal of Family and Economic Issues, Springer, vol. 29(3), pages 362-390, September.
    3. Loretta J. Mester, 2000. "The changing nature of the payments system: should new players mean new rules?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-26.
    4. Michal Grinstein-Weiss & Yeong Yeo & Mathieu Despard & Adriane Casalotti & Min Zhan, 2010. "Does Prior Banking Experience Matter? Differences of the Banked and Unbanked in Individual Development Accounts," Journal of Family and Economic Issues, Springer, vol. 31(2), pages 212-227, June.
    5. Nunoo, Jacob & Andoh, Francis K., 2011. "Sustaining Small and Medium Enterprises through Financial Service Utilization: Does Financial Literacy Matter?," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 123418, Agricultural and Applied Economics Association.
    6. Brian Mantel, 2000. "Why do consumers pay bills electronically? an empirical analysis," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 32-48.
    7. Edward S. Prescott & Daniel D. Tatar, 1999. "Means of payment, the unbanked, and EFT '99," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 49-70.
    8. Andrew Carswell, 2009. "Does Housing Counseling Change Consumer Financial Behaviors? Evidence from Philadelphia," Journal of Family and Economic Issues, Springer, vol. 30(4), pages 339-356, December.
    9. Brutscher, P-B., 2012. "Making Sense of Oil Stamp Saving Schemes," Cambridge Working Papers in Economics 1203, Faculty of Economics, University of Cambridge.
    10. Jayanta Bhattacharya & Thomas DeLeire & Steven Haider & Janet Currie, 2002. "Heat or Eat? Cold Weather Shocks and Nutrition in Poor American Families," NBER Working Papers 9004, National Bureau of Economic Research, Inc.
    11. Stanley, Denise & Bhattacharya, Radha, 2008. "The informal financial sector in the U.S.: The role of remittances," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(1), pages 1-21, February.

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