Three Markets for the Second Bottom Line

Doing well by doing good is a belief system adhered to by many credit union leaders. Whether formally or informally, they keep a close eye on the second bottom line (2BL) – the one that measures social impact.

The strategies for keeping 2BL in the black often center on engaging people in the community who are not well served by traditional financial institutions. Meeting these individuals where they are serves a dual purpose: First, it instills hope, lifting them to see and believe in a financially healthy future. Second, it sets them on a path to that future with products, education and support capable of making dreams a reality.

There is no shortage of people who would benefit greatly from the influence and assistance of a credit union. However, three segments in particular stand out. Young, fast-growing and in need of specialized financial guidance, the Hispanic, LGBTQ and Gen Z markets have as much to offer credit unions as credit unions have to offer them.

The Hispanic Market

Among the movement’s ambitions for the future is to lower the average age of membership. The Hispanic community is one of the youngest groups in the U.S. with more than half of the segment under the age of 29, according to Forbes. What’s more, Hispanic people make up close to 18% of the total population in the U.S. Credit unions who invest in outreach to this traditionally underserved community stand to increase the number of relationships they have with younger people while enriching the diversity of their overall membership base.

The needs of the Hispanic market are as varied as the individuals who comprise it. Yet, there are some that are uniquely matched to the credit union difference. As reported by CNN, mistrust of financial institutions may exist among some Hispanics, leading them to seek assistance from alternative, sometimes predatory, providers. The June 2017 CNN story cited a survey by the National Council of La Raza finding 81% of Hispanic registered voters believe that if the government had fewer rules on banks, credit card companies, payday lenders and mortgage lenders, those companies would be more likely to take advantage of them.

Educating skeptical individuals on the non-profit nature of the credit union can be a great first step to opening lines of communication and beginning to establish trust. Credit unions that partner with organizations already established in the Hispanic community (i.e., churches, chambers of commerce) stand the greatest chance of changing perceptions and opening minds to the possibilities of a relationship.

The cooperative, community-oriented model will also appeal to many Hispanic individuals whose families may have relied largely on financial networks of family, friends and parishioners for money matters. Tandas, for example, are popular among many Hispanic families. These are informal groups that meet every payday to contribute a portion of their earnings. The collection goes to one member of the tanda each week. By establishing similar saving circles for the Hispanic members in their communities, credit unions can offer an additional layer of security, as well as an opportunity for members to begin establishing credit.

The LGBTQ Community

Financial challenges and opportunities for the LGBTQ community open up a similar prospect for credit unions to live out their “people helping people” missions. As with the Hispanic community, there is a wide range of needs within this segment, many of which affect couples specifically.

Over the past five years, legal decisions have opened up more than 1,000 financial benefits for same-sex couples, including filing joint tax returns and adding spouses to health insurance. These developments are impacting more people, with a recent survey from The Williams Institute at the University of California, Los Angeles School of Law estimating 700,000 same-sex couples in the country, 114,000 of which are raising children. Credit unions with financial planning expertise are in a great position to reach out to this community, who may also have specific savings goals relative to adoption and fertility.

Even as marriage has opened up financial benefits, there are still a few societal and gender-specific obstacles that stand in the way of financial success for the LGBTQ community. Lesbian couples, for instance, may earn substantially less than their male counterparts. For these couples, pay disparity based on gender may hit doubly as hard. Gay men also have been shown to earn less than straight men at an average of $26,500 less per year, according to a June 2018 story in Forbes.

And then there are the real and subconscious biases that affect how people treat one another and the assumptions they make about their lives, needs and preferences. While the majority of LGBTQ adults who participated in a recent Filene study believe society is now more accepting of people in their community, they also have concerns about being denied a home mortgage for sexual orientation, not financial reasons.

Despite these challenges (or perhaps because of them), the LGBTQ community represents a smart investment for credit unions. Individuals within this segment are entrepreneurial, and LGBTQ-owned businesses are thriving, a recent report from the National Gay & Lesbian Chamber of Commerce indicated. They are also buying homes at an increased rate and contributing to a buying power nearing $1 trillion, according to Bankrate.com.

More than 75% of LGBTQ adults and their friends, family and relatives said they would switch to brands that are known to be LGBTQ friendly, Advocate reported in January 2018. Credit unions that demonstrate knowledge, understanding and a welcoming environment have a tremendous opportunity to make a difference within this community.

The Gen Z Segment

People born after 1995 are classified as Gen Z, which puts members of this generation between the ages of newborn and 24 today. A great number of individuals in this segment, which is now 80 million people strong, are just entering adulthood and making all the financial decisions that go along with this stage of life. According to Filene, this generation may be the most diverse and highly educated generation in U.S. history.

The Gen Z spending power is roughly $200 billion, and the youngest among them have a sizable influence over how their parents spend money as well. Nearly 10% of adults in a recent survey said their children influence 100% of what they buy. That statistic underscores the importance of working through existing credit union members to reach their Gen Z children.

Like every generation before it, Gen Z struggles to connect with the older, self-proclaimed “wiser,” people who have come before them. They are early adopters of technology and are completely comfortable abandoning conventional media if it’s not meeting their needs. Whereas the baby boomer generation spends about 24 hours a week watching TV, Gen Z spends just 13 hours per week. What’s more, they are sophisticated about avoiding digital advertising, deploying ad blocking software and other tools that keep marketers at bay. Credit union people, however, who are masters of human interaction, face-to-face engagements and word-of-mouth marketing, have a significant leg up against competitors when it comes to communicating with Gen Z consumers.

All indications are that Gen Z will be financially responsible, perhaps even frugal. Seventy-two percent said cost is the most important factor when shopping, and they fear taking on debt for education. And that trepidation appears to be growing exponentially. In 2016, 21% of Gen Zers said they would take out a student loan. Just one year later, that number dropped to 11%, as reported on Hackernoon.com. Credit unions that can demonstrate expertise around making the most of savings and cash-flowing college could win big with this group.

As credit unions explore strategies for outreach to underserved communities, whether they’re those mentioned above or others, it’s important to keep a few things in mind:

• Within every consumer segment, there are sub-segments, each of which has different notions about financial institutions and different ways of managing money. Credit unions will want to do their homework, consult with experts and talk with the community to ensure they are reacting to real versus perceived need.
• Establishing trust is a must. One meaningful way to demonstrate sincerity is to add people who represent the community you want to reach to your staff or board. Invest in the cultural readiness of your cooperative so that you are truly capable of serving new members in the manner they deserve from day one.
• Consider the two-way benefits of enriching the financial lives of the people your competitors ignore or misunderstand. Engagement with financially underserved communities can do as much for the credit union leader’s soul as it does for the person in need of just and honorable financial services.

Credit union leaders will sit down with representatives of the Hispanic, LGBTQ and Gen Z markets at the upcoming THINK 19 conference, organized by CO-OP Financial Services. Being held in Miami, Fla., from May 6 to 9, 2019, a special session of the conference will be moderated by Jean Chatzky, taking place at 1:15 p.m. on May 8. Each panelist will talk about the societal and financial challenges they face, as well as how credit unions have helped and their communities achieve their financial goals.

Crystal Solomon is Client Business Executive for CO-OP Financial Services. She can be reached at crystal.solomon@coop.org.