Community Service

Deliver the 'FHB' Message

CUs owe it to their members to provide financial education.

December 01, 2010
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If your mother was like mine, you probably heard a lot of sayings you never thought you’d say to your family, but ultimately found yourself sharing variations on the themes you inherited.

Like many of you, my mother’s family experienced the Great Depression firsthand. They learned how to scrimp and how to save. They learned how to stretch a meal as well as a dollar.

Most of them paid off their homes long before they reached retirement age—unlike many workers today. They had little sayings like “a penny saved is a penny earned,” in contrast to today’s “a penny earned was probably borrowed in the first place.” They understood that saving is hard work and happens a little at a time.

When company came and food was served, there was a code that would be shared after a prayer and before the family-style meal commenced. My mother and her five siblings would hear a quick “MIK” or “FHB” uttered.

They had their orders: MIK meant “there’s more in the kitchen,” and plenty for all, while FHB meant “family, hold back.” Her family learned the code when they grew up and passed it along to their children as well. MIK or FHB immediately told a new generation of families whether they could have seconds or whether they should take only a single, small serving.

Consumers holding back

I recall some of those sayings and signals because we’ve clearly entered a period where consumers are holding back. Holding back on purchases because they’re concerned their jobs may not be secure. Holding back because they’re having trouble making ends meet. Holding back because the value of their retirement funds crashed. Holding back because no one knows for sure if the economy will rebound, when, and by how much. Holding back to pay themselves first by saving money for tough times still ahead.

And at the risk of offending some writers about financial matters who blame consumers’ financial woes on overspending on wants rather than needs, I’m reminded that studies show the biggest causes of consumer financial problems are the result of unexpected medical bills, loss of job, and divorce—all life-changing events that in at least two of those examples have nothing to do with personal greed—thank you very much, Ms. Orman and other opinion-shapers.

Many consumers are overextended and ill-prepared for tough times that are likely to last longer than six months. Consider just a few statistics that are affecting your credit union, your employees, and your members:

* Bankruptcy filings (business and nonbusiness) at the end of 2008 topped 1.1 million, up 83% from just two years earlier, according to the Administrative Office of the U.S. Courts.
* Bankruptcy filings in February 2009 rose 29%, compared with February 2008 and are projected to rise 35% for all of 2009, reports the American Bankruptcy Institute.
* Credit card delinquencies in the first quarter of 2009 hit a record 6.5% and charge-offs reached 7.5%, the Federal Reserve reports. Care to bet whether they’ll go higher?
* Consumers’ overall ratio of debt payments to income has dipped only a tad, even though they’re finally saving money—about 4% of their disposable income, according to the Federal Reserve. That’s because unemployment has pushed down overall disposable income.
* U.S. employees spend 12 to 20 hours a month at work on personal finance matters, according to the Personal Finance Employee Education Foundation, Summerfield, Fla. It’s no wonder.

Mortgage debt grows

And while everyone talks about credit card debt—which is a serious concern—it’s mortgage debt that has overwhelmed most consumers, having nearly doubled since the 1980s.

With falling home prices, more than 10 million homeowners have mortgage balances that are greater than the values of their homes, the Credit Union National Association’s (CUNA) 2009-2010 Credit Union Environmental Scan reports. Many negative-equity homeowners have defaulted, creating even more foreclosures, more unsold homes, and even more downward pressure on home values.

And with every increase in unemployment—expected to climb to 10.5%, CUNA estimates—the cycle is likely to get worse.

By their own admission, consumers don’t understand personal finance. The National Foundation for Credit Counseling, Silver Springs, Md., recently conducted a stress test and found that 41% of American adults—92 million people—would give themselves a C, D, or F on knowledge of their own personal finance. A quarter of all adults don't pay their bills on time and 33% said they have no savings.

Personal finance has become more complicated. Savings and investment options are plentiful, if not lucrative. Understanding a loan’s terms is complicated.

Remember when there was a move to make things easy to understand? That was followed by a move to plain language disclosures pushed by consumerists. Then came a legislative and regulatory push for disclosure laws to give consumers more information.

CUs owe it to members

What the heck happened? Many lending agreements have so much fine print it’s a wonder the attorneys who wrote them can read them. Open-ended change-in-term provisions made for questionable lending practices by many but proved so lucrative and popular in the banking world they were adopted by others like cell phone and cable companies.

For these reasons and more, credit unions have a duty to help their members.

Credit unions are consumer friendly. We’re member-owned, and financial education is a basic tenet of the movement. We’re supposed to be the source for personal finance information, yet nearly four of 10 credit unions with less than $250 million in assets don’t offer financial education to youth and adults, CUNA reports.

And as one credit union caller recently opined, the money management information on her Web site is “nonessential.” How can that be at this time, in this environment?

If financial education isn’t essential now, when will it be? If members can’t count on their credit unions to help them understand when there’s no MIK and when it’s time to FHB, who will tell them?

If you don’t help members understand their finances, who will? Consumers rely on lawyers, doctors, accountants, and other experts to help them. Shouldn’t they be able to count on credit unions, too?

JAMES HANSON is vice president of CUNA’s center for personal finance. Contact him at 608-231-4080.

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