How did you learn to drive? Watch YouTube videos until you felt ready to take on the highways? Read a book series with descriptions of stick shifts and windshield wiper switches?
Of course not. You got in a car and did it. Sure, you had some help along the way. The patient (and terrified) family member. A driving coach insisted upon by your relatives. Or maybe you went to school somewhere they still had (have?) driver’s ed.
Regardless of the method, you learned what you could academically, then did the thing. Driving can only be learned through, well, driving. Even self-driving systems simulate and observe millions of miles of actual roads driven.
In some ways, computers learn like us. By doing. Enhance this process with the right approach to building financial well-being.
Financial Education Comes From Financial Action
Why is this introducing an article on financial education? Because it’s the same thing. Learning happens when you’re taking action, not from passive guidance.
Some years ago, we recognized the enormous challenge that a lack of financial literacy brings to our society. When people don’t know the first thing about money, it’s hard to build savings, get a reasonable loan rate, and so much more.
Let’s be clear: It’s not their fault. Our education system puts little value into financial education. How many elementary, middle, or high school classes did you have on how credit cards work, or what an interest rate means? If it was more than one, count yourself lucky.
So financial institutions, including credit unions like yours, stepped up. We’re proud to be a part of an industry which truly wants their members to understand what is possible with money.
Unfortunately, most are designed like school lessons. They cover relevant material, but it’s boring…or hidden. And, like some school subjects, has little tangible connection to the real world. Plus, the only reward is a grasp of the information itself. Which isn’t much motivation.
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Frankly, Fees Fund Financial…Frograms
As you may know, fee-based income is a large portion of credit unions’ revenues. It is also borne from those who are already least able to pay, and least likely to have a deep financial understanding. That’s not fulfilling the credit union mission.
Sure, we hear about how these products allow people to extend a form of credit when they need it most. Without it, they couldn’t buy all their groceries, pay for this month’s electric bill, or some other essential expense. It’s a small price to pay to let people get what they need.
Yet if you consider the fee a short-term loan, it becomes an astronomical interest rate. One a responsible financial institution would never claim to offer. In fact, if you were suspecting this may have DEI and racial connections, you’d be right. Research suggests minorities like Blacks and Latinos pay higher fees.
At least your traditional lending approves a wide swath of the population…except for those it doesn’t. They end up at payday lenders, stuck with interest rates that make those fees seem miniscule. But you have a responsibility to manage risk. And there’s CDFI to help.
But for the most part, financial education can fix that, right? For some. The financial resources on your website would be a great help, if they were ever used.
Dollars to Reward. Education to Grow.
We saw this disconnect as an opportunity. Some years ago, our company built a financial literacy platform to provide a basic understanding of budgets, interest rates, and other common principles. In all honesty, it wasn’t unique. However, we added one extra twist.
Financial institutions could use the platform, with one recommended catch. It would not sit as a resource on the website. Instead, a link would automatically go out when someone triggered a common fee, such as OD or NSF.
Along with the link is a notice that, upon completion of the course, they’ll have their fee waived. So the member can learn something and see a tangible financial impact of their new understanding. Now there’s a reason to bother. And you’ve helped build loyalty. What would it take to engage your members with some rewards?
Want another real world example? Here’s one from SELCO Community CU. First-time auto buyers may take their “How Credit Works” course, pass the quiz, and receive a discount on their auto loan rate. Smart.
Of course, financial education (even with rewards) cannot help everyone. Sometimes, you just don’t have the money, even if you know plenty.
The Difference Between Education, Knowledge, & Empowerment
So what can you do beyond educating? That’s where we need to explain the difference between terms. This Learning Library section is called Financial Empowerment. Why not Financial Literacy? Or Financial Education?
Because empowerment is an active task. Education can be passive. Literacy feels stodgy. Taking relevant action is how you will improve financial understanding in real practice.
There’s another reason to consider this approach: Engagement. An empowered member is given ways to learn as they do real things. In fact, they are doing the things in conjunction with the learning.
And there’s a potential for rewarding once again. How that ends up looking is for you to decide, however, it should complement your goals and their financial needs. This is a perfect place for gamification strategies that combine with your data analytics.
The Journey to Financial Well-Being
We believe financial empowerment leads to financial well-being.
Enabling positive relationships with money while offering the solutions to help achieve financial goals: That’s mission-focused and a goal we can all support.
This series will help you understand how to make those connections. Plus, you’ll discover how new products can further enhance this strategy. Here’s some of the things you can expect to learn:
- What if you could create a predictable monthly subscription for members, while providing them protection against costly (for everyone) ID theft or even things they use every day? You earn regular revenues and they have one less thing to worry about. And those revenues can power even more efforts.
- Who knew selling could be the responsible financial strategy? Learn how ancillary protection products may take effect when members are at their most financially vulnerable.
- As introduced above, fees power your institution, but are paid by those already struggling. Can there be an alternative approach? And how would it work?
- Plus other ideas!
You are driven by serving members. And that means doing all you can for everyone, not just those with a great credit score or the time and inclination to perform financial research. This is nothing new for you, it’s just bringing together your mission with real actions.
Like this Learning Library.
Ready to join us on the journey?
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Focused on helping your bank or credit union grow in the face of emerging challenges.