Wednesday, June 18, 2008

Mmmmmm…Financial Education: Is there anything it can’t do?

The following post was written by a friend and fellow Maine State CU employee, Dan Emery. He is a teller here at the credit union and has really stepped up in an effort to bring financial literacy to the front of our minds through research and connections.

Operating a successful business is anything but simple. It doesn’t matter what type of business you’re in, there are worries and challenges at every level. These include supply and demand, profit and loss, service standards, product standards, employees and payroll, the budget, change and improvement and the risks associated with decision-making. Before a business makes a decision it has to take into account the advantages and disadvantages of that decision. The litmus test for a decision is ultimately the bottom line; is it going to make money or will we lose money?

Credit unions deal with these same issues but we have a unique situation. Our litmus test for decisions is very simple; “Is this good for our members or is this bad for our members?”

Sometimes, to do what is best for our members we have to spend money that we may not recover in a typical sense, but it will help us gain loyal, long term members. Other times an opportunity presents itself that is beneficial to both the membership and the bottom line. This opportunity is Financial Education.

Here are a few statistics on financial literacy in our country today*:

  • 15 million adults receive phone calls from collectors or are considering filing for bankruptcy.
  • Only 2 in 10 keep track of their spending – regardless of gender, age or income
  • Only 59% of young adults in Gen Y pay their bills on time
  • The majority of Americans do not have a sufficient emergency fund (3 to 6 months of income saved)
  • More than 76 million adults say they do not have retirement savings

These stats are only the tip of the iceberg. With a little research you will uncover MANY more shocking statistics like these. So what do we do about it?

We need to help these people take control of their finances! We need to teach them how to budget, spend responsibly, save, reduce debt and build assets. This should not be a one time class; this should be a multiple step process over an extended period of time. We need to create one on one relationships with our members. We should let them ask questions and then help guide them to determine their goals, wants and needs.

How will this benefit our members? Through this process we will build a bond with our members that will make them feel respected, empowered and comfortable and we will earn their trust on an entirely different level. They will gain an understanding of their finances that will give them control, hope and less stress. It is a great feeling to have control and an understanding of your finances.

So what does the credit union get in return? Most importantly we get happy members!

We will create a reputation that people find attractive and it will show we are truly worthy of their business. If we help one person take control of their finances they will tell others how well they’re doing and how it happened; our name will get mentioned and we will attract new, long term members.

Gaining new, financially educated members will result in new accounts, new loans, more loans paid on time, fewer overdrafts and bounced checks, higher balances and more frequent use of our services by more people.

Not only should we strive to educate our entire membership we should also strive to set ourselves apart service-wise. We should do our best to lower fees, raise rates and make our members feel like they’re a significant part of their credit union and not a customer.

A thorough financial education program is a solid, long term win-win situation for both the member and the credit union.

Dan Emery

Maine State CU

12 comments:

James said...

Where the hell does your credit union get tellers that can write/think like that!

In Australia, our labour market is so tight that we have Tellers and Phone consultants that can barely type an email... I am not joking.

Good post Dan.

Ginny Brady said...

Great post, Dan. It's nice to hear your voice (beside Andy's) in the blogosphere. You nailed it when you said that the litmus test for credit unions is "... Is it good for the members". Thanks for sharing your insights on the importance of member education.

Bruce said...

Dan,

I agree philosophically, but I wonder. Why, in a country where 76 million adults have no retirement savings and 80% do not track spending in any way, do we have any reason to think that more financial education will do anything other than fall on incredibly deaf ears?

For education to work in any setting, the learner must want to learn. I'm not convinced the average American adult, credit union member or not, wants to do that.

Anonymous said...

That’s a good point Bruce. I agree that the learner must want to learn, but I don’t think the problem lies with ‘not wanting to learn’. I think that it’s a lack of knowing where to go to get reliable information while at the same time being bombarded with incorrect information.

Learning is very easy when we’re younger because we have schools. We attend school from 4 or 5 years old through 18 years old. Then we head out into the work force. Some will attend college and continue their education, but after that where are you? We work full time, we start a family and say goodbye to a majority of our free time. Who wants to spend what little, precious free time they do have researching and mulling over seemingly boring information and numbers? This is one of the biggest reasons we need to have financial education in our schools. If we teach them proper financial techniques from an early age it will carry on through their adult life and then get passed on to their children.

Then we have the issue of incorrect information. People are bombarded with credit cards, immediate gratification, fast and easy cash and the need for the newest, biggest and best of everything. There are no ads that say “We have this great new product! You should save up your money and buy it when you can afford it! It’ll be worth it AND you don’t have to sacrifice your financial future!” So, it’s no wonder people must have everything now without thinking ahead. They need to learn how to be financially responsible.

Another reason may be that people who don’t make a lot of money don’t consider themselves as investors or potential investors. After all, you have to have a lot of money to do things like that. These are the mindsets people have that we need to break.

If we bombard people with correct information and let them know how simple it can be to budget, to save for a car, education, a home and for retirement, I think we will start seeing a HUGE improvement. We need to make finances less overwhelming and less frightening for people. Once they see how easy it really is they’ll wonder why they didn’t do it sooner.

Dan Emery
MSCU

everythingcu said...

Dan, I LOVE this idea/quote:
"We have this great new product! You should save up your money and buy it when you can afford it! It’ll be worth it AND you don’t have to sacrifice your financial future!"

If ANY company used this in their advertising, gosh, it would cut through the noise because of its refreshing honesty. Great post. Thanks for sharing!
-Morriss Partee

Bruce Geiger said...

Dan,

This response is intended with great respect for your POV, but, again, I'm skepical about the value of being "bombarded with information," good or not.

If mere collective weight of information were sufficient, no one would smoke, no one would drink and drive and no one would eat Big Macs.

Yet these things all still happen all the time everywhere. Clearly, just lobbing info bombs at a disinterested audience has questionable benefits.

And no, I don't have a better idea. I just don't think more information is the key.

Other thoughts?

Andy said...

First off, thanks to Dan for writing this as I've been insanely busy getting MSCU's new website up and running. Its an excellent post.

Though I think Dan certainly has the right idea about the importance of financial literacy, I'd have to agree with Bruce on bombarding people with information. I wish thats all it took, but the all important consumer question always comes up "what's in it for me?"

The people that are going to respond to an increase in information are those that are probably already seeking out that information. There is, unfortunatly, a large segment of people who need an incentive, even to help themselves.

For that group, the ones who have almost zero handle on their finances (which is the group that matters when it comes to Financial Lit) it will take a strategic, engaging effort to get them to participate.

If you want to teach somebody who doesn't look like they want to be taught, you have to do it without them knowing they are being taught. You have to include the information in something they would like to do instead. What that is, I haven't figured out yet.

Andy said...

@Morriss

That line caught my eye too. I love that approach. I wonder if that could be incorporated into a credit unions lending advertising...

Dan Emery said...

Haha… I take no offense to different opinions Bruce. You make great points. It’s true! If it were based solely on the quantity of information more people would stop smoking, drinking and eating Big Macs. Speaking for myself, I avoid fast food like the plague, I don’t smoke and I only drink occasionally. I do these things (or don’t do these things) because it makes me feel healthier (and I save money). Likewise, I budget and analyze my spending and savings habits to make myself feel healthier financially. But the question is: How many people have changed their habits of smoking, drinking and eating fast food because of the information out there? And, how many people would change their money habits because of the information we put out?

What we need to do is figure out a way to make financial knowledge as attractive as possible, cater to those attractions and make sure we’re pushing quality over quantity. For example: To get high school students interested in fiscal responsibility you could ask “How many of you want to be rich?” I’d be willing to bet that 99.9% of those students will raise their hands. Follow up that question with, “If I told you that I could show you ALL how to become rich, would you be interested in learning how?” I’m sure the majority of students would show an interest.

Now, obviously, we aren’t going to reach everyone. The important thing is to get the attractive, quality information out to those people who would benefit from it. Hopefully we would end up drawing in others who may not have been thinking about their financial situation seriously.

We need to figure out who our target members are. What life situations can we use to attract people? Purchasing a car, going to college, getting married, buying a house, having children/grandchildren, retirement, etc are milestones in life that effect most people. Focusing on these specific, relatable areas will help us draw people in.

Lastly, helping someone become financially successful is more valuable than any advertising campaign we could come up with. Word of mouth is a powerful thing.

Bruce Geiger said...

Dan,

You said "What life situations can we use to attract people?" and then listed several life transition events.

Yes, I agree that those are key intervention points. Since each transition event has specific financial stressors attached to it, as soon as consumer says, " Yikes, now what do I do?," it's a perfect teaching opportunity. It's just in time and there's clearly something in it for them.

I've thought a lot about these transition events. They're sort of like boundary regions in fractal math. A lot of extremely cool opportunities exist there, but they strike me as somewhat hard to harness effectively.

Okay, now I'm done.

Dan Emery said...

“Just-In-Time” Instruction was researched and tested by CUNA in high schools and it received mixed results. Just because the students received this just-in-time instruction didn’t guarantee they would do better with the testing or the life situation.

It’s unrealistic to think that students will retain all of the information given to them during high school. I don’t remember a lot of what I was taught in high school, but I do remember the things that interested me and other bits of information from various classes as well as how to find the answers. Having a little information and learning where to find the answers is extremely valuable.

At the very least they’ll be able to say “I don’t know exactly how to achieve this financial goal or solve this financial problem, but I remember from this class I had in high school that I could find the answers at a credit union.”

Brand loyalty will also come into play. It is an accurate stat with credit card companies that the consumer will show their loyalty to the company that gives them their first card. This is the same with financial institutions. Our loyalty will, most likely, remain with the first institution we have our account with. It’s a security blanket concept; this is what we know and we are comfortable. The things that will change this are bad service, lack of needed services or other circumstances such as moving. Of course shared branching removes some of this possibility.

As far as gaining adult members for financial education, this proves to be more difficult. One of the best ways, I feel, would be to improve our reputation with community involvement. If our name is out there in such a positive light we will attract people. Once they are familiar with us we can show them how much more we offer.

Andy said...

For some reason the link isn't working right, in Dan's last comment it should link to http://www.cuna.org/download/svgtn06_d.pdf