Lending

Guide Members to Financial Health

Creating financially healthy members has clear long-term benefits.

August 27, 2014
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Financial health

Many young people reach adulthood lacking basic financial education and literacy skills. This can lead to poor credit scores and the inability to manage their money—sometimes even bankruptcy.

More than 75% of Americans live paycheck to paycheck with little or no emergency savings, according to a survey from bankrate.com. And a May 22, 2014, report from CBS News indicates that half of U.S. families that define themselves as middle-class say they struggle financially or feel poor.

A financial education void clearly exists which credit unions could—and should—help to fill. Financial education includes instruction about basic household finances, credit scores, debt management, and identity protection.

The average household credit card debt, while down from a previous high of $19,000 in 2008, still tops out at about $15,000, according to nerdwallet.com. This is especially significant as credit card debt is a major factor in consumers’ financial health as higher credit balances can be indicators of poor financial management skills.

A financially healthy member is one that understands the value of saving for future life events—both expected and unexpected. Another component is the ability to balance household finances and use credit wisely.

Increasingly, credit unions find themselves developing new ways to serve and educate members, while also successfully protecting and growing the bottom line. Guiding members to financial health is critical for several reasons, including the importance of credit unions’ original mission to serve those of modest means, and the need to maintain a healthy and growing membership base.

Case study: SF Police CU

After serving members for more than 60 years, SF Police Credit Union in San Francisco is well aware of the importance of members’ financial health. The $740 million asset credit union serves law enforcement and fire and rescue staff in nine Bay-area counties.

Loan officers review credit reports with members on a regular basis and help members make wise choices if their credit scores aren’t sufficient to secure affordable loan products.

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SF Police also takes the long view when it comes to lending and financial health. All employees are trained to provide members with the best possible financial options. Sometimes, given members’ current financial status, what they want in a loan is simply not possible.

If a member’s credit score is low or they carry a high debt-to-income ratio, for example, the credit union may spend time discussing a long-term plan to help them remedy the situation rather than providing a high-interest-rate loan.

The credit union also makes use of its website to promote members’ financial health. Its “advice and planning” page focuses on financial well being for different life stages including childhood, college, marriage, parenthood, and retirement.

Among the information covered are good financial habits and priorities, planning for the future and the importance of credit scores.

The website offers fraud prevention information relating to identity theft, phishing, and other scams, as well as traveling with a credit and debit card. Members can call whenever they have questions or concerns. Staff will discuss debt-management plans and walk the member through credit reports.

NEXT: Second-chance checking

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October 2014

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