Do You Offer Financial Education for the Right Reasons?

Is your first priority to increase business or to improve members' lives?

October 4, 2010

When it comes to financial education, what do credit unions really want to accomplish? Do you want to do what's in your members’ best interests—or the credit union’s?

James Hanson
James Hanson is vice president of CUNA's business to consumer publishing department.

The Credit Union National Association’s (CUNA) personal finance department recently conducted a nationwide online survey to learn more about credit union attitudes about personal finance and personal finance delivery.

Among other things, we asked respondents to list the top three member behavior goals they hoped to accomplish by providing personal finance information. We gave respondents six choices and asked them to choose their top three.

Here’s the breakdown from the 229 credit unions that responded to this statement: “Indicate your credit union’s top three member behavior goals for providing personal finance information.”

Respondents said they want to:

  • Increase use of multiple services (86%);
  • Increase borrowing (73%);
  • Increase online banking activity (53%);
  • Increase saving (32%);
  • Decrease undesirable activity, such as overdrafts and delinquencies (29%); and
  • Increase member net worth (26%).

Clearly, there’s no right or wrong answer. But isn’t it both interesting and a bit disappointing that reducing undesirable behavior and improving members’ net worth scored the lowest.

At least “increase saving” came in a paltry fourth. (I know, your credit union needs more loans not more savings.)

One could argue that each of the top three scores better serve the credit union than the member. Perhaps that’s not the best way to look at your financial education program.

Is your first priority to increase business or to improve members’ lives?

Next: Why offer financial education?

Why offer financial education?

Perhaps these scores reflect the need for some credit unions to re-examine why they provide member education in the first place. Clearly there are a host of programs out there to use.

As a leading provider of financial education materials, CUNA has nine online offerings, in-person seminars, and written materials, and has been in this business since the ‘60s. It has more than 2,200 online subscriptions among credit unions.

CUNA is by no means alone in its view that financial literacy is important to members and to credit unions. Bucky Sebastien, new executive director for the National Credit Union Foundation, is said to be making financial education the cornerstone of his plans.

Not that the Foundation hasn’t been steeped in personal finance before with its Real Solutions campaign and funding of the BizKids television show.

But now the Foundation has a front person with political connections in credit unions and in government.

And, of course, there's a host of other providers selling their wares as the next answer to improving financial literacy. Some even tout that their programs can increase your front-line staff's cross-sales, though that’s very difficult to prove.

What’s your rationale for financial education? Is it to help your members or to improve your bottom line?

Next: The ‘new poor’

The ‘new poor’

There’s little doubt in most people’s minds, however, that financial education is necessary. And while the most effective education programs start early and continue throughout a lifetime, it’s impossible to ignore the need for adult education.

After all, kids will model what they learn at home. And most teachers will tell you how difficult it is for kids to unlearn behaviors they have by the first grade.

Still, financial education isn’t getting through to many adults—those consumers who need help and who are often woefully unprepared to manage their money. A big problem in today’s economy is that the groups that need help are growing, not shrinking, as new groups join the ranks of the unprepared.

The New York Times series on “The New Poor” examines the struggle consumers have to recover from today’s Great Recession.

Starting in February and still ongoing, the series chronicles what’s happening among the 17% of the population that’s either unemployed, underemployed, or has given up the job hunt. Many of these people need help.

For example, the gap between whites and minorities is growing larger. It’s hard to ignore how rising unemployment and growing foreclosures in the recession have combined to destroy black wealth and income gains over the past 20 years.

The Institute on Assets and Social Policy at Brandeis University says that for every dollar owned by a white family, a black or Latino family owns just 16 cents.

At the end of 2009, The Economic Policy Institute reported in “The State of Working America” that median wealth for white Americans had dipped 34% to $94,600, compared with a 77% drop in median wealth for black Americans to $2,100.

“As jobs have become harder to get, so has welfare: as of 2006, 44 states cut off anyone with a household income totaling 75% of the poverty level—then limited to $1,383 a month for a family of three ($16,596 annually),” the Times reported.

At the same time, economists worry that the recovery will fail to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed. So where do the new poor turn?

Many jobs simply won’t come back. In some cases, jobs have been outsourced to less expensive workers overseas. In others, new technologies have made skill sets obsolete.

Hit hard have been administrative and clerical workers, which have lost 1.7 million jobs since the recession began. Nearly half the printing machine operators lost their jobs between 2007 and 2009. Travel agent jobs fell 40%.

Other groups that have been adversely affected include women between the ages of 46 and 64 and workers age 55 and older. In fact, more than 2.2 million workers age 55 and older are unemployed, and nearly half of them have been out of work for six months or longer.

The unemployment rate among that group is 7.3%—a record. For many, today’s stark reality is it will take years to absorb the unemployed back into the work force, and many older workers will drop out of the labor force due to their age before their fortunes change.

Forced early retirement imposes an intense financial strain, particularly for people with lower incomes. The poverty rate among this age group is nearly 10%.

Next: Far-reaching impact

Far-reaching impact

Even for those who are now investing in training to learn new skills, the impact of the recession is far reaching. A Labor Department study of 160,000 laid-off workers in 12 states between 2003 and 2005—a time of economic expansion—showed that those who went through job retraining wound up earning little more than those who didn’t, even three or four years out.

Discouraging? You bet.

Against this backdrop it's apparent the need for money management skills is at an all-time high, and there are those who say financial education programs don’t work. But can you afford not to offer them?

Among the reasons cited that financial education doesn’t work—well, it’s often not timely. Knowing how to shop for a mortgage isn’t relevant to a 16-year-old.

Others say no one is doing a good job of measuring results. Just because you put on a seminar and 25 people attend doesn’t mean they walked away with an improved ability to understand today’s complex financial world or that they’ll improve their financial behavior.

There’s no question that it’s hard to prove financial education programs work. Just ask the JumpStart Coalition, which has been measuring financial education results in high schools for years and reporting little improvement.

As CUNA’s 2010-2011 Environmental Scan says, “Evaluations of financial education programs confirm that we don’t yet understand what works for whom in what circumstances, or how or why it works.”

There are indeed legitimate and valid questions and concerns about financial education. But does that mean you stop trying? No. We cannot afford to give up.

But let’s circle back to the start of this column. What if part of the problem concerns the desired outcomes credit unions are trying to achieve.

Granted, our snapshot survey is telling, only in that it provides an attitude that may be in need of adjustment.

Is it really in the members’ best interests to increase online activity or to borrow more money? Shouldn’t members’ needs top all your concerns?

Shouldn’t the order of those responses above have been exactly the opposite? And don’t you think there’s a strong probability that financially capable members will use more of your services, borrow more, and increase online banking activity?

Next time you think about your member education program—you know the one that only about a third of credit unions dedicate even a single full-time equivalent employee to—ask yourself what or whom you want to help first: your member or your credit union.

JAMES HANSON is vice president of the CUNA’s business to consumer publishing department. Contact him at 608-231-4080.