Measuring Affluence and Poverty – The ATM Test

Nov 25, 2010 by Adam C. Powell, Ph.D.

Today, I tried to use an automated teller machine (ATM) that was malfunctioning. In order to determine when the problem occurred, I looked through the receipts in the bin next to the machine. While doing so, I was able to observe both when withdrawals had been made and the size of the remaining account balances.

While ATM balances are not likely to be good indicators of wealth, they may serve as good indicators of poverty. As overdraft fees are around $30, there is a strong incentive to avoid overdrafting (taking out more money than you have) by maintaining a higher balance. Although people with savings are likely to not keep most of their wealth in their checking accounts so that they can obtain a return on their money, they are likely to keep a substantial enough amount of money in their checking accounts as to avoid the likely possibility of an overdraft. (ATM balances are poor indicators of wealth, as once accounts have a certain balance, say a thousand dollars, the likelihood of an overdraft becomes very low, and it makes more sense to put money in accounts that either bear interest or can grow.)

Looking through the basket of receipts, I noticed that a substantial portion of the accounts had balances of below $100. Given the fees that banks charge for overdrafts and in some cases, for low account balances, these individuals are unlikely to have cash outside of their ATM accounts. If I were interested in creating a business designed to appeal to low-income people (such as a store selling $1 sandwiches, or something of that nature), one metric I might use to select a location would be the percentage of locals with low wealth. This may be a better metric than income as people may have fixed expenses or debt that prevent them from spending their income on discretionary goods and services.

Performing the ATM test:

• Grab the ATM receipts from the trash bin of a store’s machine on several different days at several different times of day
• Determine the average account balance
• Look at the frequency of balances in different ranges (i.e. $0-$100, $101-$499, $499-$1,000, and $1,000+)
• Determine the average balance for each period of the day (i.e. morning, noon, evening, and late night)

The results of the ATM test are a good indicator of the percentage of people in a location that have low and high savings. Furthermore, they may be used to determine whether there are time trends in the affluence of the individuals. Businesses can potentially use the results to modify their hours so that they are open at times that their patrons are most likely to be out and about in the neighborhood.