When it comes to poverty in Rochester, many of the available statistics are grim. One study shows that Rochester has the highest rate of extreme poverty of any comparably sized city in the United States. Extreme poverty is defined as below 50 percent of the poverty level. This same study also points out that Rochester is the fifth-poorest city among the top 75 metro areas nationwide. A 2022 report contends that nearly one-half of all children in Rochester live in poverty and that this number is the second-highest rate in the nation.
Given the unfortunate fact that many in the city we call home are poor, it is worth considering how poverty in Rochester and elsewhere is impacted by the move by increasing numbers of businesses to not accept cash for transactions, but instead to become cashless environments. Businesses, of course, have their reasons for not wanting to accept cash, but assisting poor people with transactions is typically not one of them.
The poor in Rochester and elsewhere in the U.S. are frequently unbanked. This means that they have no access to and/or do not use banking services. Nationwide, nearly 6 million households, or 4.5 percent, were unbanked in 2021. In New York, an even share of households—5.9 percent—were unbanked.
The poor are unbanked for several reasons. Surveys conducted by the Federal Deposit Insurance Corporation ask households without bank accounts why they are unbanked and the answers are instructive. One key reason is that these households cannot afford to maintain the minimum balance requirements. A second important reason is that poor, unbanked households do not trust banks. A third salient reason is the cost of dealing with banks.
Some of us may not worry at all about paying to maintain our bank accounts. But for poor Rochesterians, paying the many fees that banks frequently charge can be a herculean undertaking. For instance, a recent Bankrate survey demonstrates that monthly service fees for banks range from $5 to $15. On top of that, banks routinely earn between $4 and $5 every time a customer withdraws money from an ATM or utilizes a service such as obtaining a cashier’s check. Finally, uncertainty in the form of unexpected bills can lead to bank accounts being overdrawn, resulting in additional overdraft fees.
The collective impact of all these fees is that about one in every five people in the U.S. has little or no connection either to banks or to financial institutions more generally. The implication of this unfortunate state of affairs is that these individuals are effectively excluded from interacting with businesses, restaurants, and even medical professionals that do not accept cash.
The impact of the move by businesses to a cashless environment is felt most by the poor, and frequently unbanked, amongst us. Such individuals must now take actions that are almost never in their financial interest. An example of such an action is to purchase a reloadable prepaid debit card from a merchant such as Walmart. But this action is ultimately counterproductive because one has to pay to pay!
The next time we patronize an establishment in Rochester or elsewhere that is cashless, we should recognize that such establishments, in effect, exclude the least among us who are also very often unbanked. Looking at the problem from the other side and to build a more inclusive society, policymakers with jurisdiction in Rochester should do all they can to ensure that all businesses accept cash.
Amitrajeet A. Batabyal is a Distinguished Professor, the Arthur J. Gosnell professor of economics, and the Interim Head of the Sustainability Department, all at Rochester Institute of Technology, but these views are his own.