Government finances are in a perpetually sorry state. That's not news; everywhere you turn, you'll hear all about it.
But what doesn't grab many headlines is the crisis in Americans' personal finances - problems that make the Treasury seem tightly squared away in comparison.
There's the retirement crisis, where one in five American adults have nothing socked away for retirement. You've got the cash crisis, in which nearly 40% of American adults can't meet a surprise $400 expense, like a mid-range hot water heater repair or doctor bill.
And then there's the "unbanking crisis." A stunning 7 million homes in the United States don't use a bank for anything at all; 18% have "minimal interaction" with the banking system.
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The Un- and Under-Banked Have a Big Problem
Earlier this year, at Mississippi Valley Collage in Itta Bena, Miss., U.S. Federal Reserve Chair Jerome Powell gave voice to what's been common knowledge since Adam Smith "invented" capitalism in the 1770s: "Access to safe and affordable financial services is vital, especially among families with limited wealth whether they are looking to invest in education, start a business, or simply manage the ups and downs of life."
Powell's not wrong.
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Look, I'm the last guy who'd argue for wealth redistribution or expanding government, but that wouldn't fix this problem anyway: A great deal of the inequality currently ripping America's social fabric comes from a simple lack of access to the market - a market that's supposed to be free and open.
And as you'll see in a second, the capitalists - the hungry, smart ones - have a pretty convincing solution.
The main reason, by far, given for not having even so much as a checking account, is insufficient money to cover the expense of maintaining an account. Around a third of the unbanked... simply don't trust banks.
It didn't take much detective work to figure out why. I took a quick look at a large bank's website today.
To open a savings account requires a $100 deposit. If your balance falls below a minimum of $500, you're on the hook for a "fee" - $8 a month. So after one year, $96 of those $100 would be paid to the bank as fees!
In that light, it really makes more sense to keep that $100 in a tin can hidden in the house.
What's worse, not having a bank account acts like a hidden tax in many ways. Can you imagine not having so much as a debit card in today's world? You couldn't shop online, where just about anything you want to buy is cheaper. It becomes just about impossible to save money, since, as we all know, cash we can see is almost certainly cash we will spend.
It gets even worse on the borrowing side of the equation. The only loans offered to the unbanked are going to be short-term or "payday" loans, which can carry annualized interest rates in the mid-triple digits.
The entrepreneurship that's helped define this country, that can offer the hardworking a route out of poverty and into wealth and generating jobs, is almost impossible without startup capital. Unbanked folks have a much harder time qualifying for business loans.
Physical access to banking is choked off, too. Between 2014 and 2018, nearly 2,000 low-income neighborhood branches closed. Banks simply do not want the business; they're cutting costs by closing branches in poor and/or rural parts of the country.
So could the banking industry knock down many of these hurdles? Sure they could.
But I'll let you in on a dirty little secret: Most bankers don't want to. The accounts would be too small, and customers wouldn't qualify for lucrative credit or investment products because their incomes are too low. Providing customer service to the unbanked can be expensive to boot.
Trouble is, by ignoring the needs of the unbanked, bankers have effectively left cash on the table. Sure, they see the downside in serving one otherwise un- or under-banked customer... but they they've failed to grasp the upside in the fact that there are 7 million households out there to serve.
And hey, if the old-school bankers want to leave cash on the table... it's a free country. All we have to do is go in and pick it up.
This is where that good old-fashioned American entrepreneurialism kicks in...
Unbanked Money Is Green, Too - This Company Sees That
Green Dot Corp. (NYSE: GDOT) is a little bit tech company, a little bit bank. It's a "fintech" (financial technology) company that offers a bunch of different products for the unbanked market.
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Green Dot offers prepaid debit cards that can be reloaded all over the country at big-name retailers like Walmart Inc. (NYSE: WMT), Dollar General Corp. (NYSE: DG), Dollar Tree Inc. (NASDAQ: DTLR), or Kroger Co. (NYSE: KR) with multiple, convenient locations. It offers "virtual banking" that functions almost exactly like a checking account, with routing and account numbers, check-cutting services, pseudo-savings accounts, and low- or no-fee ATMs. The difference is you can make deposits at convenience store points of sale instead of a banking counter. Green Dot also offers secured credit cards that help previously unbanked folks build a strong credit history.
If you're unbanked, Green Dot makes a pretty compelling argument for your business. The stock is even better - and on sale right now, to boot.
You know I love a good, cheap stock...
Green Dot shares recently plunged after the company reported earnings. There was absolutely nothing wrong with earnings, but the company reported its plans to boost spending on technology and marketing to grow the business.
As a result, it lowered full-year earnings guidance; Green Dot now expects its full-year earnings per share to come in somewhere between $2.71 and $2.77, versus its previous guidance range of $2.82 to $2.91.
Wall Street hates lowered guidance, so the stock has fallen by over 40% in the past month. These shares have seen 52-week highs of $93, and if management executes on their plan, they won't have much trouble getting back there and blowing right past it. That alone would put around 210% in your pocket.
With the stock trading at a little more than 10 times the expected earnings, I think there may be an enormous opportunity right now to do good by doing well with the stock. So does Green Dot's management, by the way; they announced a definitive agreement with Bank of America Merrill Lynch to purchase a total of $100 million of stock under an accelerated stock repurchase transaction.
Let's be clear: The new business opportunity is not just the unbanked. Those perennial disruptors, the millennial generation doesn't care about traditional branch banking, either. So Green Dot bank is bringing out a whole range of digital banking programs to serve this other underserved segment of the population.
It represents an enormous growth opportunity.
Green Dot just released the new program called the Unlimited Cash Back Account. It pairs a high-interest savings account with a high-reward debit card that helps millennials do something that statistics show they could use help with: saving money. It pays 3%. That's the highest interest rate of any bank savings account in the United States right now. I don't think there's a millennial alive today that remembers an interest rate that high.
Bringing banking to the unbanked and providing the digital service millennials crave is without doubt a massive 21st century profit trend you want to ride. And the cherry on top: It goes a long way toward solving a corrosive social problem, too.
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.