Congress designed the credit union charter in the depths of the Great Depression with an express purpose to “promote thrift among members and create a source of credit for productive and provident purposes.”
Credit unions have consistently delivered on that promise with a laser focus on improving financial well-being for average consumers for more than 100 years. I often hear credit union leaders say, “It’s not ‘a thing’ we do, it’s ‘the’ thing’ we do.”
Today, that commitment is more important than ever. The human toll of the global pandemic, both from a public health perspective and from an economic perspective, has been devastating.
But in the face of grave uncertainty and rising risks credit unions leaned in, putting capital to work to ensure members navigated the crisis as quickly and with as little disruption as possible.
The record is clear: credit unions rose to the occasion, helping more than 120 million Americans with waived fees, loan modifications, and payment forgiveness, as well as new, innovative lifeline loans.
Credit unions saved tens of thousands of small, Main Street businesses and hundreds of thousands of associated jobs, lending billions through the Small Business Administration Paycheck Protection Program.
These behaviors matter. They always have. Consumers widely recognize credit unions as a trusted destination of hope to overcome financial challenges. Delivering on the mission of improving member financial health has produced fiercely loyal members, stronger communities, and more successful and resilient credit unions.
If history is a good guide, millions more will join credit unions in the coming months. You’ll recall that in the wake of the Great Recession, total credit union memberships regularly grew five, six, and seven times the rate of U.S. population growth.
The future is bright. But it’s also uncertain.
The movement operates under the existential threat of changes to its tax status and regulatory reforms that could greatly impede our ability to serve members. Policymakers increasingly want more proof of credit union mission fulfillment.
Meeting these challenges head-on will require each of us to commit to both better communicate what we do for our members and better measure the impact we have in members’ lives.
We need to do this more often, more consistently, and with more detail.
The credit union mission, as described in the Federal Credit Union Act, is clearly linked to more than financial education or financial literacy.
Financial well-being has an obvious connection with financial literacy but it’s much broader than that. It includes both what people do with their money and how they feel about their money.
Credit unions use a wide variety of approaches to cultivate financial well-being. But two models—one developed by the Consumer Financial Protection Bureau (CFPB) and one by the Financial Health Network—have been widely embraced.
The CFPB’s formal definition of financial well-being is “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life.”
The definition broadly encompasses the idea of security and choice, both in a consumer’s current situation and in the future.
The bureau has developed a rubric that helps consumers measure their financial well-being. It’s a short questionnaire (10 questions) that focuses on the extent to which people feel that they:
Each question is scaled and a composite score ranging between 0 and 100 is calculated. Scores have been correlated with outcomes historically and the CFPB reports that scores of 50 or below are associated with a high probability (well above 50%) of struggling to make ends meet and of experiencing financial hardship.
On the other end of the spectrum, scores of 61 and above are associated with low probability (less than 10%) of having trouble paying for basic needs or making ends meet.
NEXT: ‘Financial health’