Imprisonment is associated with reduced bank account ownership

People who have served a prison sentence are less likely to have a bank account after their release than they did before serving their sentence, and this may affect their long-term financial security, according to a new study.

“Locked Out of Banking: The Limits of Financial Inclusion for Former Inmates” was written by Brielle Bryan, assistant professor of sociology at Rice University, and J. Michael Collins, professor of public affairs and human ecology and holder of the Fetzer Family Chair in Consumer and Personal Finance at the University of Wisconsin-Madison. It is one of the first studies to examine how incarceration status affects access to banking services. The work was published in the journal Social science research.

“Financial inclusion has become a major concern around the world when it comes to eradicating poverty and providing opportunities to the most marginalized members of society,” Bryan said. “With this study, we wanted to focus on former prisoners, who we know are some of the most marginalized people in America today.”

The researchers found that overall, bank account ownership declined significantly after incarceration, and women and Hispanics were more likely to lose access to banking services after incarceration compared to other groups. The researchers also found that those who were able to maintain bank accounts during incarceration were disproportionately white and had higher levels of education.

“Our study can’t say exactly why incarceration seems to reduce access to bank accounts, but we have a few theories,” Bryan said. “We don’t think it has to do with a lack of trust in banks among people who have had contact with the justice system, because we didn’t find that pretrial detention or arrests reduce access to bank accounts.”

Rather, Bryan said, it is more likely due to hurdles in opening an account that may seem minor to the general public, such as presenting a valid government-issued ID or proof of residency in one’s name.

“These kinds of small obstacles can lead to major disadvantages for former American prisoners,” Bryan said. “We know that the alternatives to traditional banking can be exploitative and expensive – services like short-term loans and check cashing. Regardless of exactly why this is happening, it’s a huge problem.”

The study authors explained that confirming this lack of access to banking services after incarceration is important because the lack of financial security among people who have served a prison sentence can have a significant impact on their long-term economic security.

“Access to banking services is important for anyone, but especially for someone trying to get back on their feet after serving a prison sentence,” the authors write. “Access to banking services allows individuals to more easily save and access money to pay bail, rent, utilities, probation fees, and other outstanding legal financial obligations.”

“In addition, individuals with a bank account can deposit or cash paychecks more easily and inexpensively than with alternative financial services. Accordingly, the lack of a bank account is likely a contributing factor to many of the difficulties faced by former prisoners with respect to housing, credit and debt, and wealth creation.”

Bryan and Collins hope their research will lead to interventions that ease inmates’ transition into society and provide them with easier access to banking, pointing to promising models such as Hawaii’s efforts to provide checking and savings accounts to people on work release.