Beth Troost :: Blog

Now is a great time for consumers to buy a new car.  The Invest in America program offers deep discounts to credit union members and other new incentive programs can add to that savings.  This is also an excellent time for consumer education about the financial implications of owning a car.  While you are helping your members to save big on autos, you can also help them make smart choices and plan ahead to fit maintaining that new car in their budget.      

Buying a car is probably the most expensive item a consumer buys besides a house;  it is important to look at all of the costs involved and how it will fit into the family budget.   Provide your members with information and guidelines to make it easy for them to evaluate and plan a new car purchase. 

How much to spend?  Advise consumers to look at their overall debt level and show them how to figure out the ratio of debt to income.  A healthy debt ratio is 20 percent or less using net pay and not including housing.  Help members determine what the new debt ratio will be including the new car payment.    

As a general guideline, transportation should take up 20% or less of total monthly expenditures.  This should include all costs; such as insurance, registration, fees, fuel and repair, as well as the monthly loan payment.  Tell members about insurance deals or group discounts you offer. 

All of these costs should be included in a monthly spending plan.  Have members divide yearly costs such as insurance and registration by 12 and set this amount aside each month into a separate savings account.   Even new cars will need routine maintenance and repair, so add at least $30 a month to the set-aside for these costs.   Advise members to save the amount of their insurance deductible in a savings account or to save monthly to work toward this goal.   Having a set-aside savings account will help members avoid taking on additional credit or having a budget crunch when those occasional costs come up.   Encourage the use of direct deposit into separate savings accounts to make setting aside this money easy and attainable.   

Help members take advantage of the great auto deals and help them plan ahead to make owning easy! 

Credit is a fact of life in our society.  Most Americans enter into a lifelong relationship with credit from a young age with their first auto or educational loan.   By offering loans to minors, credit unions can help their young members enter into their “credit life” prepared with knowledge and experience. 

I know that with all of today’s economic and credit problems, many would wonder why in the world we would want to encourage youth to start their credit life off early, encouraging them to borrow while still a minor.  Haven’t we seen enough young people who fall too easily into credit problems once they turn 18 and start getting the credit card offers?  Aren’t we supposed to be encouraging saving rather than credit to help combat the credit problem? 

We see so many people struggling with perpetual credit problems due to early and ongoing credit mistakes.  People who are caught in a cycle of overextension, who have difficulties keeping up with credit bills, are unable to utilize their income to save and invest in order to get ahead and create personal wealth.  Early lending experiences, coupled with credit and saving education, can help youth learn and practice responsible borrowing, making them more prepared to avoid future credit problems. 

 Now is a good time to promote youth lending/credit education to your young members and their parents.  The current economic problems are making youth (and parents) very concerned about their future “credit life”.  Youth lending programs can give young members a solid background in the wise use of credit and create valuable lifelong credit union members. 

The Financial Education Council of the MCUL offers an updated “Youth Loan Manual – Guidelines for Success” to help credit unions get started or improve their youth lending programs.  This manual is available free to download at:  http://www.mcul.org/files/cucorp/744/file/YLM%202009.pdf

Even with the current economic situation, there are still many creditors out there hungry to offer youth their first loan or credit card.  Do you want your young members entering into credit relationships with them or do you want to provide them a safe, structured environment to learn how to use credit responsibly?  If you start your members off early with a youth lending program, coupled with safe, sound credit parameters you can provide yourself with young, loyal, and responsible borrowers. 

 I’d like to hear your successes and struggles with youth lending – please share them on this blog or contact me.   And for more information, join us as we explore the manual and other aspects of youth lending with a session at the MCUL’s Lending Conference in February – http://www.mcul.org/2009_Lending_Conference_1921.html

Credit unions are leaders at providing financial education for members; it makes good sense to use this strength to also help our employees manage their money.  Show your employees firsthand the credit union difference of “people helping people” by helping them with financial education!

In addition to helping employees enjoy financial well-being, credit unions can improve their bottom line  and improve member service at the same time by providing an employee financial education program.  A free course “Financial Health:  Money management techniques for employees and members” is now available to download on the MCUL website (on the Financial Literacy homepage under CU Community.) --    http://www.mcul.org/Financial_Literacy_653.html

Why offer employee financial education?  Studies show that 1 in 4 American workers report that they are seriously financially distressed and dissatisfied with their personal finances; personal money problems contribute to lower productivity and higher absenteeism.  50-60 percent of American workers report that they are one paycheck away from financial trouble.  Financially literate employees are happier and healthier and more satisfied with their job and their rate of pay.  Even as credit union employees work to provide financial services to our members, they may be experiencing the same economic problems and can benefit from increased personal money management skills.   Employee financial education training provides a double benefit for credit unions…it helps your staff enjoy better financial health and helps them better understand and serve members.  According to Dr. E. Thomas Garman of the Personal Finance Employee Education Foundation, employers can improve profits by $750 to $2,000 per employee when they provide financial education programs that improve personal financial behaviors.  These profits are realized in the improved behaviors of financially savvy employees such as lower health care costs, higher productivity, and lower FICA payments due to increased participation in pre-tax reimbursement accounts.  To learn more about the benefits of offering employee education, see the Personal Finance Employee Education Foundation website at:   http://www.personalfinancefoundation.org/about-us.html

The free course:  MCUL’s “Financial Health” course for employees contains all of the resources needed to facilitate a training session for your employees including a PowerPoint presentation with complete instructor notes, employee handouts and activities.  This course is recommended for all employees as part of orientation and training and may be customized with your credit union product and benefit information.  The presentation covers fundamental money management techniques that lead to improved financial health:  financial assessment, planning, goal setting, using credit, saving and investing.  This course can be presented by your credit union trainer or other credit union staff instructor.  Because extensive speakers’ notes and activity instructions are included, the instructor does not need to be an expert in money management to lead the course.  The course is designed to be presented in two to three hours, depending on activities. 

Credit unions are places that help people take care of their money….let’s be sure to include our employees!    

The credit market is tightening, and not just for big corporate borrowers.  Consumers are facing a whole new set of lending standards and are finding that the days of easy credit have come to an abrupt halt.  Lenders are no longer freely offering credit to consumers as they have been in the past, often in larger amounts than a prudent borrower should take on.  New lending standards in some areas are restricting loans to all but the most credit worthy borrowers. 

Experian reports that the average credit score is 692, but today that average score may not be enough to get approved for an auto loan.  The Free Press reported today in the Auto News Section that “Some dealers have reported loosing 20% of their sales as buyers get turned down for loans after agreeing to purchase vehicles. GMAC Financial Services said earlier this month that it would make auto loans only to customers with prime credit scores of 700 or above.”   (Full article:  http://www.freep.com/apps/pbcs.dll/article?AID=2008810230340)

It is important for our members to realize the scope of this tightening and pay attention to protecting and improving their credit so that they are able to borrow when they want and need to.   Credit education for all members, even those with above average credit scores is important.  A good way to do this is to invite members into your branches for a complementary credit report review.  Help them check their report for errors and suggest strategies to improve their score.   Of course, the most effective way to protect and improve a credit score is to make all credit payments on time every month.  Credit can also be improved by keeping credit balances to 35% or less than credit limits, evaluating the number of open credit accounts and the levels of unsecured credit.  Average consumers are not used to worrying about the ability to get a loan when needed, but times are changing. 

Over the last few weeks reports of the economic crisis and poor financial outlook are all over the news.   I have seen several media segments in which money management “experts” are advising people to keep a portion of their money in “cash” as a safety net.   

By this they don't mean actual cash, they mean cash equivalent accounts – insured deposit accounts that are liquid or immediately accessible – like credit union share savings, checking, and money market accounts. But they don’t actually say this on the air and I worry that they are sending the wrong message. 

People who work in the financial industry understand what a “cash“ account means, but we should not assume that all of our members and the public watching those money management segments also understand this.  I have heard from a credit union employee that members are coming in wanting to withdrawal large amounts of cash from their accounts in a misguided attempt to keep their money safe. 

Front line staff need to be sure to understand and communicate that money held in these credit union “cash “ accounts are safe and liquid, they are insured by the National Credit Union Share Insurance Fund (NCUSIF).  The NCUSIF is a federal fund that insures member’s deposits in a credit union up to at least the $100,000 federal limit. 

When the media does talk about insured accounts, they most often mention the FDIC and fail to mention that credit union accounts are also insured.  Like the FDIC, the NCUSIF is backed by the full faith and credit of the U.S. government. 

Sometimes financial education involves very basic information communicated in person and through signage, website and statement messages.  For more information to share with staff and members, visit  NCUA at http://www.ncua.gov/ShareInsurance/index.htm 

A fundamental concept in financial education is distinguishing between needs and wants.  Consumers tend not to discriminate between the two and could save money to meet their obligations or save for their goals by realizing that often they want something but they don’t really need it.   The opposite is true for financial advice and education; many people realize that they do need it, but they don’t really want it.  Credit unions should focus some of their financial education efforts on influencing their members and community members to “want” financial education assistance as well as “need” it. 

  According to a study by the National Adult Financial Institute at Indiana State University, less than 30% of U.S. adults view their personal financial knowledge as very good or better, and 8 in 10 think it is important that financial literacy be taught; however the majority of U.S. adults (65%) have not received any financial literacy instruction in the past 12 months.  Participants in the study cite the lack of funds, time, access and materials as reasons for not learning more about financial topics.  In addition, some 6 % responded that they are uncomfortable with financial literacy. 

A similar study, conducted by Princeton Survey Research Associates International on behalf of the National Foundation for Credit Counseling, Inc. finds a similar lack of financial savvy and a tendency not to turn to professional financial educators for help.  This study finds that only 59% of participants pay their credit cards in full each month and 28% don’t know that they can get a free copy of their credit report each year, but that 68%  are “not too interested” or “not interested at all” about learning more about financial issues or seeking professional advice in the next year.  Many participants report that they did not receive financial education at home or at school to help prepare them; responses of learning “not too much” or “nothing at all” about financial issues totaled 55% at school and 35% at home.  Yet, 64% of these people have never received professional advice about financial issues from an individual or an organization. The study finds that most people seek the advice of family members and friends.  Of those that sought professional advice, only 5% went to a credit union. 

 As consumers, it is fairly easy to convince ourselves to spend money on things we want but don’t really need.  On the other hand, it is really hard to spend time and effort on things we know we need but do not really want, like financial education.  Links to the research:  http://www.networksfinancialinstitute.org/Finance/facts-figures/Pages/default.aspx http://www.nfcc.org/NFCC_SummaryReport_ToplineFinal.pdf 

“Touch point” financial education is an effective way to reach members with money management advice and referrals.   Front line staff are in the best position to recognize these touch points and deliver financial education but they need to be trained and empowered to do so.  This advice comes from Lois Kitsch, NCUF’s Real Solutions National Program Manager.   Lois discussed the need for financial education in an audio conference about payday loan considerations for credit unions.  

We all agree that financial education is an important component to member service (and especially to any payday loan alternative), but what is the best way to deliver that information so that it is actually helpful to members?  Lois advises providing small amounts of appropriate information and referrals to financial counseling at “touch points” when interacting with a member one-on-one.   The best time would be when the member is not in a stressful situation and after you have established trust with them.  For example, provide information and referrals when dispersing a loan that helps a member out of a financial bind, not when they are applying.   Lois suggests educating members about the difference between credit unions and payday lenders, and the value of saving for emergencies.  Money management advice can help members evaluate and improve their financial situation; they should be encouraged to determine the cause of their financial stress and make changes in their expenses, earnings, or lifestyle.  Front line staff can use these touch points to refer members to one-on-one financial counseling to help them improve their financial situation.  To do this, employees must know basic money management concepts and be aware of the warning signs of financial distress.

  Sounds great, but how many front line staff have the knowledge and are empowered by their credit union to do this? 

Financial education is a natural and major part of credit union service to members and community members.  It is “people helping people” in a way that we know best – financial management.  Does your mission statement and core values include your commitment to financial education? 

The goal of financial education is financial “literacy”.  A financially literate person has the ability to make appropriate choices regarding money to improve their life.  This requires understanding the choices; making conscious and informed decisions; and being able to apply money management skills.  Financial literacy is not a static group of tools and facts that one can learn once and be done.   That just won’t cut it in our fast paced, ever-changing world. 

I'd rather see the word  "skilled" added instead of "literate" to reflect this need to be able to adapt and apply financial knowledge.  It sounds so much more positive and reflects ability.  Yes, all people need to aquire basic financial literacy as a start, but in order to keep up and prosper, we need to be skilled.  CUNA’s recently published Model Youth Program Guide states that financial literacy depends on acquiring a set of skills rather than a body of facts. These skills include knowing how to get and use information necessary to make sound financial decisions as personal financial circumstances arise and change.

It is important to offer both youth and adult financial education.  Youth need to learn early about savings, goal setting, and financial choices.  Because today’s economic challenges and financial choices come quickly, they can outpace the ability of adults to handle their money.  Adults need to continually update their knowledge and skills to keep pace, and credit unions are a natural partner to help them stay "financially skilled". 

There are so many negative financial buzzwords bombarding the consumer:  “foreclosure crisis”, “troubled economic times”, “the credit crunch”, etc.  Consumer anxiety (and mine!)  rises each time we turn on the TV or pick up a paper and are faced over and over again with the news of economic doom and gloom.  Economic hot topics come and go with various new buzzwords; but the personal financial management practices to deal with these challenges remain the same.  These basic concepts include spending less than you earn; protecting your credit; documenting income and expenses; creating a spending and saving plan; avoiding financial fraud and scams; and being a smart consumer of financial services.   Let’s combat the negative economic buzzwords with basic money management advice and help members feel competent and capable of weathering these “challenging economic times”!

Today's Detroit Free Press, and I'm sure countless other publications, reported the gloomy first quarter results from the Mortgage Bankers Association report.  Foreclosures and late payments are at record high rates.  Michigan's delinquency rate for all loans was at 7.84% for the first quarter, the second highest rate in the nation. 

http://www.freep.com/apps/pbcs.dll/article?AID=/20080605/BUSINESS07/80605058/1020

So many (16%) homeowners now have no or negative equity in their homes.  That percentage is expected to continue to increase to affect almost one in four homeowners! 

Credit unions can help with financial education for members and community members who are are anxiously watching their equity drop and wondering how to weather the storm.  Helpful at this time are basic money management and budgeting techniques as well as help with financial/housing counseling and information about community services.  There is an abundance of misleading information and for-profit foreclosure "assistance".  Credit unions need to let their members and the community know that they are a trusted source for real financial education and assistance.    

I'd like to showcase the ways that Michigan credit unions are helping with financial education... What are the best ways to reach and assist members and community members?  Please let me know what your credit union is doing for financial education in this area.  You can post a reply on this blog and share your ideas, successes and challenges.  We didn't create this mess but we can help clean it up!