Build trust to gain very low-income members: Federation

February 3, 2015

NEW YORK (2/4/15)--Traditional approaches to achieving financial stability are not effective in helping very low-income (VLI) consumers, according to new white paper from the National Federation of Community Development Credit Unions.

The report summarizes the findings from 50 interviews with VLI consumers from four parts of the country.

The purpose of the research was twofold: first, to determine whether VLI consumers (those with incomes of less than $20,000) constitute a distinct market segment from low- to moderate-income consumers in terms of their usage and demand for financial products and services; and second, to investigate how socially minded financial institutions could sustainably meet that market demand.

Among the findings:

  • Instability and volatility is the norm. Due to their work situation and the unpredictability of their financial lives, VLI consumers' financial lives are marked by uncertainty and unpredictability. Emergencies and shortfalls are constant, making traditional credit products with recurring monthly payments fundamentally flawed and incompatible with the monthly fluctuations in income;
  • Trust and relationships remain key to moving toward greater financial stability. The VLI people interviewed for this study expressed a strong desire for help, but almost no interest in learning about financial products. Institutions that can help solve immediate problems earn trust and patronage, but institutions that push new products, even those that may provide long-term benefits, are viewed with suspicion;
  • Mobile banking technologies have not earned the trust of VLI consumers. Although VLI consumers have high usage rates of mobile technologies, they do not trust these technologies for their financial decisions or transactions. Interviewees expressed strong fears that they will make mistakes or get in trouble by using mobile tools to access products, services or information. They prefer to seek guidance and advice from people instead of technology;
  • VLI consumers depend on cash. Despite high levels of technology use, VLI people continue to live in a cash economy with all that connotes. In many cases, this is by preference, as negative and adverse experiences occur when trying to access formal banking systems;
  • Traditional budgets are not helpful in managing household finances and flows. Because VLI consumers have inadequate, unpredictable and wildly fluctuating incomes, traditional budgeting tools are of little use to them. Busy and stressed people seek more than just information and advice about how to do something; they want actual help to do it, especially in areas they find unfamiliar and intimidating; and
  • Context matters. Products and services must be matched to fit within the context of a person's overall life, not just their financial profile. When the capacity to save is uneven and small, then the ability to borrow and repay under flexible terms is needed.