With Inflation at Record Highs, How Can Credit Unions Help?
CUs can implement financial wellness programs to help their members make smarter financial decisions.
According to a recent report from PYMTS, 61% of consumers are living paycheck to paycheck in 2022, a 9% increase since 2021. Even those making over a quarter-million dollars a year are struggling to make ends meet. As a result, many consumers are taking on more debt. In fact, credit card balances have risen to a total of $841 billion in the first few months of 2022, according to the Federal Reserve Bank of New York, and debt levels could continue to rise amid higher gas prices, housing costs and other essentials.
The good news is credit unions can be a resource. Credit unions can implement financial wellness programs to help their members make smarter financial decisions amid the current economic environment. Doing so requires a mix of the right resources and incentivized learning opportunities with intuitive digital tools.
Encourage Good Financial Habits With Rewards
Without adequate financial education, many individuals find it hard to make smart financial decisions, let alone feel confident in their decisions. Evidence has shown that financially savvy people are more likely to plan, save and have less debt. People with greater financial literacy also tend to be more resilient in the face of economic downturns. However, it is hard to get members to engage with educational content.
Technology and intuitive digital tools can help. Credit unions have the data they need to provide advice that empowers members with educational opportunities that help them achieve financial wellness. This advice can educate members on a range of topics – from financial counseling to managing debt, paying for student loans and other areas of personal finance. Using the marketing area of the credit union’s online and mobile banking applications for education and advice is an easy opportunity for providing value. In addition, going back to the basics and hosting lunch and learns or online literacy seminars can encourage members to leverage the great people and resources available through their credit union to work on their financial wellness.
Going a step further, some credit unions may opt to reward members for learning about personal finance, creating an additional incentive for those who want to improve their financial literacy. For instance, if a member reads an article about budgeting and then successfully answers a few questions, they can unlock a reward, such as a small deposit into their savings account. Rewards-based programs are an effective way to help members establish more positive financial habits long-term, including managing a budget and growing their savings, which can lead to higher account balances over time. No matter what the current economic climate is, saving is the first step on the path to financial wellness, so giving members a way to learn, save and get rewarded makes a meaningful impact.
Guide Members to the Right Tools
Credit unions can also help members battle the effects of inflation by encouraging them to keep a close eye on their monthly budget. Offering online or mobile personal financial management tools can support this by enabling members to set financial goals, track their progress, keep tabs on spending and avoid overspending. When members have a comprehensive view of their current finances and future financial goals, it’s easier for them to maintain a budget, consistently contribute to their savings and even avoid late bill payments.
Similarly, when credit unions have a more holistic view of members and their financial goals, they are more equipped to guide members to the right products and resources. To gain a more comprehensive view, credit unions should look at different data points, including what members are saving for, what their transactional data looks like and what content they are clicking on when using online or mobile banking. For example, if a member sets a goal to save $5,000 for a new car, their credit union knows that information on auto loans and rates would be especially relevant for this member. As the member progresses closer to their savings goal, the credit union can follow up with more specific details on loan options and current rates.
When possible, credit unions should also advise members to set up personalized alerts within their online and mobile banking based on their unique financial needs. For instance, some members may want to receive alerts when their account falls below a certain balance to keep themselves on track. Alerts have been around for a while, but this is a great opportunity to remind members of tools that are already in place. This can help members avoid penalties from missed bill payments due to insufficient funds or even overdraft fees.
Help Members Weigh the Pros and Cons of Financing Options
Let’s face it, there are also countless ways consumers can borrow money these days, whether that means signing up for a new credit card, applying for a loan online or enrolling in Buy Now, Pay Later (BNPL) financing. With record-high inflation and rising prices for everyday necessities, many Americans have chosen to rely on alternative forms of borrowing money, but this is only fueling cycles of debt for some. Credit unions can educate members on the potential risks of utilizing different financing programs and the risk of the interest and debt cycle they can find themselves in. For instance, the credit union can promote consolidation loans to bring things together and help members get back on track with their financial goals.
No matter what a member’s financial goals are – whether it’s early retirement, or buying a home or new car, taking on additional debt has implications for those goals. When deciding between forms of financing, such as BNPL, and other forms of credit, like a personal loan or a credit card, members must consider how the line of credit will impact their ability to save. Credit unions should help members weigh the pros and cons of each option as it relates to their current financial situation and future goals.
Do they need to build up their credit score in the long-term to buy a house? If so, a traditional credit card might be the best option. Do they need to make a necessary purchase right now and pay it off over time without significantly impacting their credit score? If so, BNPL may be a good choice. Or are they struggling to pay off their existing credit card debt because of a high interest rate? A personal loan with a lower interest rate may be the best option.
Credit Unions Provide Community to Those Who Need It
Given inflation and the sky-high cost of living, more Americans are living paycheck to paycheck than ever before. Many people were already struggling with their finances before the COVID-19 pandemic hit, but the pandemic exposed more Americans to financial vulnerabilities, making it difficult to achieve sustained financial wellness. Income loss due to layoffs, pay cuts and of course inflation have prevented many individuals from generating enough income or savings to be resilient in the face of an emergency or a recession.
Fortunately, credit unions are in a unique position to support their members as they navigate the current economic climate. By educating members and giving them learning opportunities to improve their knowledge of personal finances, credit unions can help their members make better financial decisions and ultimately achieve their financial goals.
Kathleen Craig Founder and CEO Plinqit Ann Arbor, Mich.