How Credit Unions Can Prevent Monetary Pitfalls

Over the past 10 years, the American economy has fully recovered from the devastating economic effects of the Great Recession. The unemployment rate is at its lowest point in 48 years. Income levels have risen. GDP growth is strong. Nevertheless, major financial issues persist under the surface for countless American citizens.

Unfortunately, Americans do not have the necessary strategies in place to traverse everyday financial problems. The most predominant reason is the lack of financial literacy on issues such as student loans, general savings and retirement savings. Luckily, Americans can utilize their local credit unions to help supplement their existing financial knowledge and approaches.

Through their education programs, financial planning and member service, credit unions are well-positioned to assist their members with complex financial issues and navigate them away from common monetary pitfalls.

Financial Literacy

Over 80% of U.S. consumers have “have not attended a financial literacy program,” Raddon reported. Consequently, a significant majority of Americans do not have the basic knowledge and skills to manage their finances. According to the 2018 TIAA Institute-GFLEC Personal Finance Index, “many Americans lack personal finance knowledge that enables sound financial decision making and effective management of personal finances.” In a 2018 study from the University of Illinois, researchers found that “nearly a third of young adults … were … ‘financially precarious’ because they had poor financial literacy and lacked money management skills and income stability.”

While studies show that Americans lack financial literacy, nonetheless, Americans still have supreme confidence in their ability to manage their money. Raddon also found that 44% of survey respondents “self-report[ed] that they are extremely or very financially literate … [however] when asked to take a financial quiz, fewer than half achieved a passing score, and only 6% scored an “A” grade of 90% or better.”

Credit unions must humbly educate and show their members they have a substantial amount of financial information left to learn. Furthermore, credit unions should use their education programs as a tool to attract and retain members.

Student Loans

Student loan debt has reached $1.5 trillion dollars, according to the Federal Reserve Board, with the average student loan totaling $34,144 per borrower, Experian reported. The board stated, “Over half of college attendees under age 30 took on some debt to pay for their education.” This trend does not seem to be stopping any time soon.

Many students and families don’t even have a strategy for handling student loan debt when they leave college. Sallie Mae has found that “four in 10 families (39%) say they haven’t researched any [student loan] repayment topics.” Additionally, a 2018 Charles Schwab survey of 2,000 Americans aged 16 to 25 found that “51% say they currently have some sort of debt, but only 3% would pay down that debt if given an extra $1,000.” This a serious problem.

Credit unions can offer financial planning and counseling to help members plot out a strategy to repay their student loans and even advise students entering college what the best loan path is for their specific needs.

General Savings

Americans lack the necessary amount of general savings to respond to life’s unexpected turns.  According to Bankrate’s Financial Security Index survey, “more than one-third of households, 34%, endured a major unexpected expense over the past year … with only 39% saying they would cover a $1,000 blow with savings.” Moreover, the Federal Reserve Board reported that “four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money.” Credit unions must utilize their financial planning and counseling services to empower members with the knowledge and skills to put more money into their accounts every month.

Retirement Savings

Put bluntly, Americans do not have enough money to retire on. According to the National Institute on Retirement Society, “Nearly four out of five (81.4%) Americans have retirement savings less than their annual income.” Unfortunately, the future does not look much brighter with millennials paying down their student loans rather than saving for retirement. Even if millennials did have the necessary money available, they most likely would not know the best route to invest their funds. A Federal Reserve survey showed that “three-fifths of non-retirees with [401(k)s, IRAs and savings outside of formal retirement accounts] have little or no comfort managing their investments.” Credit unions can fill this void by customizing retirement strategies that fit the individual needs of their members. By creating retirement strategies for members, credit unions are more likely to attract new members as well as retain their business.

Credit unions should continue setting the benchmark for how financial institutions should provide financial services for their members. Credit unions’ member-first culture will allow their membership rates to grow in both the short and long term.

Rhiannon Stone is COO for EPL, Inc. She can be reached at 205-408-5300 or rhiannon.stone@epl.net.