Beginning this year, federal payment recipients will receive their government benefits through electronic funds transfer (EFT)-- what most of us call direct deposit. Although cost-cutting is the driving force behind the move to a virtually all-electronic federal payment system, Michael Stegman believes the initiative has a far broader potential: to bring poor Americans into the banking mainstream. In this book Stegman outlines how many families will enter the mainstream banking system through EFT '99, as the program is called. He explains in careful detail the thinking behind the shift to EFT and the implementation of the program this year. He also argues that, for maximum success, EFT '99 should be combined with a program of national Individual Development Accounts (IDAs), dedicated savings accounts for low-income people that can be used for purchasing a first home, acquiring more education or job training, or starting a small-business. Essentially, EFT '99 will bring people into the banking system, and IDAs will give them an incentive to use the system to its fullest in order to make their money work for them and their children. There are other steps that the government can take to boost EFT's ability to help public aid recipients achieve self-sufficiency. It can: add a direct deposit option to state benefits payments programs; give banks significant additional Community Reinvestment Act Credit for establishing accounts for EFT recipients; and regulate fees for cashing government benefits and voluntary accounts so that people are not charged excessively for accessing their money. This book demonstrates that -- with careful planning and a relatively small investment -- the government'sEFT initiative can have a major payoff in real assets and improved prospects for those who have been, for far too long, on the fringes of the country's mainstream banking system. Brookings Metro Series

Basic bank accounts are something that most middle-class Americans take for granted. We use our savings accounts to put aside money in case of an emergency, or to invest one day in a house or an education. Our checking accounts relieve us of the worry of carrying large amounts of cash. By contrast, an estimated 13 percent of U.S. families, including 10 million people who receive federal benefits, do not have bank accounts and the security that they provide. One-third of all minority households are "unbanked," as are one out of four renters, one out of six people under the age of 35, and 15 percent of families earning between $10,000 and $25,000 annually.

To be unbanked is to be under an economic disadvantage. It means that many people have to rely on fringe banking services, such as checkcashing outlets with high fees. But what is worse is the savings deficit that it creates for many working-class, and minority, and young citizens, who have a much harder time acquiring and building assets. These families and individuals are missing out on a critical component of economic opportunity. After all, building a nest egg is difficult to do if you do not have a nest.

In the past few years, in recognition of this savings deficit, the impetus of social policy has moved from that of entitlement to that of empowerment. Saving is empowering. It allows families to live without public aid, and provides them with a ladder into the middle class. It can actually change a family's economic station and set a better course for future generations. Electronic Funds Transfers (EFTs), which are . . .