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Risk Averse in a Bathing Suit

Don't let aversion to risk sink your CU.

January 02, 2012
KEYWORDS aversion , recession , risk
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My most embarrassing moment was a result of risk aversion while wearing a bathing suit.

As a kid I never took swimming lessons because I was afraid of the water. Some might say I was “risk averse.”

I decided to rectify this situation in college with Beginning Swimming taught by the elderly Ms. Biddlestone.

I had several embarrassing moments in the natatorium that semester, but the worst was the final exam. Objective: American Crawl halfway across the pool, flip over, and backstroke on the return.

Ms. Biddlestone panicked as I repeatedly attempted the flip, thought I was drowning, and sent one of my male classmates to “rescue” me.

As he dragged me to “safety,” I fought back, irate with the man. He pulled me out of the pool, deposited me on the edge, and panting with exertion said, “Lora! Are you OK?”

“No!” I sputtered. “What did you do that for? I’m trying to pass my exam!”

Lora Kloth is a research librarian at CUNA.
Lora Kloth is a research librarian at CUNA.

Blank stares and confused glances were exchanged. I got a C in swimming.

Had I not been risk averse as a child I’d have been spared the embarrassment, could have gotten an A in Ballroom Dance—and potentially served as swim team captain.

Is your credit union risk averse? Are undue cautions preventing you from future success? Is a risk worth the potential gain, and do you have contingency plans to deal with worst case scenarios?

Accurate information analysis will help you make strategic decisions with confidence. Let’s dive in to this week’s findings.

Swim outside the financial industry for a look at how others analyze their markets, consider risks, and evaluate options. “Oil and Gas Reality Check 2012” by Deloitte “represents the views assembled from our partners, clients, and industry experts…practitioners that serve the industry, manage the companies, oil field services, energy traders, and others involved in this sector.”

In “Office Supplies Pricing Study Had Limitations, but New Initiative Shows Potential for Savings” by GAO, take a look at how government considered new ideas to examine potential to realize costs savings.

Information floating by in consumer news this week includes a study from the Consumer Federation of America in its “Guide to Navigating the Auto Claims’ Maze: Getting the Settlement You Deserve” where we learn that “With the current financial markets making it difficult for insurance carriers to earn a good return on the premium dollars you pay, these companies have increased the pressure they place on the claims’ departments to pay out less in claims’ dollars and expenses than they are earning in premium payments.”

Another report from the Social Security Administration lets us know that more than health and wealth are factors in consideration of retirement in “Behavioral and Psychological Aspects of the Retirement Decision.”  

According to the study, “…it is crucial that policymakers and those in the position to guide the choices of future retirees understand the possible behavioral and psychological features of the retirement decision.”

Finally in consumer buying, examine “Profile of International Home Buying Activity 2011” by the National Association of Realtors which examines trends in purchase of U.S. real estate by international clients.

In your interactions with members, does risk aversion affect their choices with regard to retirement and obtaining appropriate insurance claims? How does this affect their finances? Can you make mortgages available to international buyers?

Drowning in research
We’re still drowning in recession-related research. First of all, see “The Recession’s Ongoing Impact on America’s Children: Indicators of Children’s Economic Well-Being Through 2011” by Brookings.

This study “tracks the economic well-being of children during the recession with three state-by-state indicators: children with an unemployed parent, individuals receiving nutrition assistance benefits, and child poverty.”

A related report is “How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study?” from the National Bureau of Economic Research.

What lessons can we learn about risk aversion? What financial considerations are important for upcoming retirees, and what level of risk is appropriate for them?

One last splash with recession related commentary is found in the Federal Reserve’s “Are Recoveries from Banking and Financial Crises Really So Different?” It looks at recovery behaviors from “59 advanced and emerging market economies over the past 40 years.”

The report notes there’s “little or no difference in the pace of output growth across types of recessions. In particular, banking and financial crisis do not affect the strength of the economic rebound, although these recessions are more severe, implying a sizable output loss.”

Evaluating risk for consumers and financial institutions alike is an important consideration in decision making. But, as we know, risk can also have reward.

Are your practices “tried and true” or “tried and tired?” Think about the possibility of extending yourself a little.

I might even set up another swim lesson. Jump in: the water is fine!

LORA KLOTH is a research librarian in CUNA's business-to-business publishing department.

If You Don't Try, You Will Die

Mark Arnold
January 12, 2012 11:03 am
Lora, Great post--and so very true. Too many credit unions are indeed risk averse. But your credit union doesn't try (something new), it will die. Could your credit union take a risk and fail? Absolutely. But you are also taking a risk by doing nothing. Risks your credit union should consider in 2012 are: loans to underserved, reaching a minority group, investing in branding, opening a new branch or launching a new product. All those things are risky. But if you aren't failing every now and then, then you really aren't growing. Mark


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