How recessions affect members and how CUs can help

In past conversations and interviews I have done, I have spoken about the “smoke detector battery” principle.

A smoke detector battery never seems to die on a Tuesday afternoon at 2 PM when you can take a few minutes to do something about it. It always seems to occur at 2 AM in the middle of the night or within an hour of you falling asleep.

That is how the inconvenience of life events work, and members deal with a lot of unexpected emergencies that require funds an individual may not necessarily have at the moment. Local credit unions can step in and fill that void of financial instability by offering the necessary financial inclusion resources when members have more month than money. So, while consumers can debate the arrival or pending arrival of an economic downturn, the specific consequences of that downturn remain difficult to predict – just like the moment the smoke detector dies.

Not all is lost, however. If your credit union has onboarded the digital and mobile banking tools readily available to help your members make it through these uncertain times, well, you have done your part. You HAVE done your part, right?

“Recession” is only a word. What can it actually do?

The numbers coming out this month are worrying. According to CNBC on October 11, J.P. Morgan Chase CEO Jamie Dimon warned that a “very, very serious” combination of economic forces has dipped and will further be dipping both the U.S. and the global economy into recession.

The problem is that those economic forces appear to have apparently arrived. Inflation has been hitting the U.S. since last year; we have all felt its effects! Heck, we have all collectively experienced the rise of gas prices, currently sitting at a +49.6 percent increase in 2022. Airline tickets rose +43 percent! How about consumer goods?

Naturally, many of us may be running calculations in our heads: “How will this recession affect me and my family?” “What do I need to do to ready myself for rough waters?”

Forgive the jargon from my Navy days, but it may be time to batten down the hatches.

The labor market and the fintech that can save it

Examining the effects of the two most recent recessions, one realizes the labor market usually undergoes a period of higher unemployment from job losses, but also less hiring.

Seeing as businesses grapple with less demand for their products while demands to pay their bills stays the same, they have no choice but to cut costs by laying off workers or reducing hours to those they can keep. When layoffs occur, workers across nearly all industries may have an immediate financial need, and that need lies in the awareness to locate responsible avenues to accessible and affordable short-term small dollar lending to bridge their finances until their next source of income arrives.

How to protect your members (and your credit union) against recessionary effects

COVID affected every aspect of life for almost three years, and yet credit unions exemplified once again their long history of offering solutions in times of financial crises. To that end, here is a list of ways credit unions can lessen the effect of recessions on their members and themselves:

• Credit unions represent support to the underserved with digital banking tools

Taking into account the current inflation period, fearful effects of the recession, and the rising cost of living, as of August 2022, 45 percent of those Americans earning more than $100,000 per year were living paycheck-to-paycheck, according to The Hill, a seven percent increase from 38 percent in September 2021. A lot of people were already struggling with their financial health before the COVID pandemic arrived, but what the pandemic did was exacerbate and expose more people to financial instability and lack of economic health, thereby making it harder to achieve financial wellness.

That is why the evolution of digital banking services is so incredibly important – now, more than ever before. By offering fintech for credit union members, it enables them to apply for and receive immediate funds in their banking accounts, wherever and whenever they need it.

• Take action and be proactive

A recession’s arrival is beyond anyone’s control, but what credit unions can control is putting checks in place to mitigate its effects.

Helping members prepare for an upcoming economic downturn can further solidify relationships with them and perhaps even impress and attract potential members. It is amazing how the positive and preparatory response a credit union takes to a coming downturn can be perceived by those who notice. Contingency planning and prep work can certainly strengthen a credit union’s competitive position and perception among the local public.

“First, it’s best not to wait. One should act now,” says Filene Research Institute senior director of research Taylor Nelms in an article in the Credit Union Times. “Preparing for a recession means planning and taking action ahead of the downturn. This means going on offense, taking steps not to just be defensive and reactive to changes in the economy but to actually be proactive, to grow through the downturn.”

• Reinforce positive financial habits, including rewards

In the absence of financial education and literacy, consumers may find it difficult, if not impossible, to make knowledgeable, intelligent financial health decisions, let alone feel confident in those decisions. Research has shown that financially literate consumers are likely to plan, automate, save, and collect less debt. Additionally, those consumers with better financial literacy also have a penchant for being more resilient when facing economic downturns. That said, it’s more difficult to get members to take a look at and then actively digest financial tips and education.

It’s fortunate, then, that fintech and intuitive digital banking tools and resources can help credit unions with that challenge. Credit unions, in addition to providing financial health knowledge, will have the digital assets that can provide members the immediate need they require.

Going back to basics by hosting lunch-and-learns or scheduling online literacy seminars can inspire members to take advantage of the guidance and direction credit union staff can offer.

The credit union mission remains the same

It is a good thing, then, that credit unions remain in a distinct position to support their members as they navigate this unstable economic climate.

By onboarding and offering members mobile and digital banking tools along with their core principle of “people helping people”, cooperatives can assist their members in making better financial decisions and accomplish their financial health goals, both for the short- and long-term.