No bank, no rank: people without a checking or savings account find it hard to get ahead in life. States and the federal government are stepping in to help.

• Author: Morton, Heather

Imagine that today is pay day. Most of us won't receive an actual paycheck. The money will be deposited directly into our checking or savings accounts. It will be there waiting for us to draw it out through an automated teller machine (ATM), debit card, credit card or check. We may choose to go into the bank to have the teller make a withdrawal or use online banking services to pay our bills.

Now, imagine that on pay day you don't have an account at a bank, credit union or any financial institution. Your employer hands you the paycheck. You have to get it cashed, buy money orders to pay your bills and try to put some of it aside to cover the unexpected expenses that crop up every month.

That's what happens to an estimated 10 million American households--the "unbanked." They are people without savings, checking or any other account. They rely on check cashers, currency exchanges, rent-to-own companies, automobile title lenders and pawn shops.

LIVING WITHOUT A BANK

People without checking or savings accounts typically have low incomes and limited education. They have very few financial assets, according to the Survey of Consumer Finances by the Federal Reserve Board of Governors. The unbanked are mostly minorities. If you put all of them in one room, one out of three would be African American, one out of five would be Hispanic. They tend to be younger, unmarried and unemployed. Although most are 35 or younger, one out of seven is 65 or older.

Their median income is $11,400 while the median income of people using banks is $40,450. Seventy-eight percent of the unbanked, compared to 48 percent of the rest of the population, say that they spend all of their income and have nothing left to save. Interestingly, 50 percent of the unbanked previously have had a checking or savings account.

The Federal Reserve data shows that households do not use checking and other accounts because:

* They do not write enough checks.

* Service charges and minimum balance requirements are too high.

* Families do not have enough money to put into an account.

* They cannot manage or balance an account.

* They have credit problems.

BEHIND BEFORE THEY START

When someone wants to open an account, financial institutions run credit histories to determine whether they have a history of bouncing checks or failures to pay overdraft charges. A person with a poor credit history will be turned down at most institutions because those firms maintain credit records for five years.

Checking accounts can be difficult to open and maintain because some families don't have enough money to meet bank minimum balances and charges for overdraft protections.

Many respondents to the federal reserve survey said they didn't trust financial institutions, and they had no need or desire to open accounts. But lack of access may also play a role. Poorer neighborhoods often do not have banks that market their services to low-income people.

HOW DO THEY MANAGE?

Although a checking account makes it easier to pay bills, people without one do manage. They can still cash their paychecks and buy money orders at banks and credit unions, but they often pay high fees. They ask a friend or family member who has an account to cash checks for them. Many...