The explosion in the number of payday lenders, check cashing outlets, and other alternative “banking” services in the 1990s and early 2000s was a canary in the coal mine for traditional financial institutions whose bread and butter has been service to middle-class households.
And what did this canary portend? It was that many American workers were falling out of the middle class due to stagnant or declining wages. It wasn’t just that payday lenders or the Walmart types saw a large market of low-wage workers credit unions or banks weren’t serving. It was a market growing larger by the day.
This is the culmination of transformational and converging economic, political, social, and technology trends that began in the 1970s. Too often we don’t connect the dots and see the interrelationship among these trends. We allow biases, assumptions, and political polemics to color our thinking about them.
You can trace this sea change to the 1970s, when average wages paid to men began to stagnate and decline. The entry of millions of women into the workforce occurred simultaneously, so two-earner households masked the challenge that men were facing. Greater access to consumer credit enabled households to finance a middle-class lifestyle with debt. But that era has all come to an end as the Great Recession gutted millions of American households financially, created ever expanding income inequality levels, and allowed an educational system to evolve into one that inadequately prepares American workers for the good-paying jobs of the future.
More of the U.S. workforce today is in low-wage jobs than in any other modern economy, according to the Organization of Economic Cooperation and Development. Almost 25% of our workforce is low wage. During the Great Recession, one half of the 7.5 million jobs lost were midrange jobs paying $38,000 to $68,000.
Since the recession ended, the economy has regained four million jobs but only 2% are in midpay industries. About 70% are in low-pay industries, and 28% in industries that pay well. Georgetown University predicts that by 2018 the U.S. will have 18 million good-paying jobs that American workers can’t fill because our workers will lack the requisite education and skills.
And now factor in these trends: the massive loss in net worth for middle-class households; the increase in working Americans now relying on food stamps; the increasing role that smartphones and tablets will play as delivery platforms and channels for financial services and payments; and the use of smartphones and tablets across all income levels, age, and ethnicity. New and nontraditional competitors are leveraging technology to expand their reach into the market of eight million and growing underserved and unbanked consumers.
I’ve been to good credit union conferences over the years. I’ve heard presentations from authors of best-selling business books and panel discussions about collaboration, technology, payments, new loan products, branding campaigns, and competition. Strategic discussions? Sometimes, but they often seem to offer tactics disguised as strategy and often don’t connect the dots.
The economic insecurities of the first and second industrial revolutions and widespread economic depressions and recessions gave birth to the credit union movement. Economic and political reforms— and the end of World War II— sparked the Great American Middle Class that did so much for our economic prosperity. Its foundation began to crumble with the oil shocks of the 1970s, the decline of American manufacturing, and the outsourcing of good-paying jobs.
Credit unions played a major role in the creation of that Great American Middle Class and all its benefits for nation and family alike, not the least of which is political stability. In many ways, credit unions are needed even more today. That’s reason to preserve our tax status, but we must start connecting the dots.
MARK CONDON is CUNA’s senior vice president, business and consumer publishing.