We have watched over the last 35 days an increasing number of stories about how government workers, most with little savings and living paycheck to paycheck have struggled to meet basic household needs. Many credit unions have done an admirable job of stepping in and providing funding solutions for their members during this difficult financial time. The industry has received favorable press and some much deserved accolades for their work. At times like this our industry has a record of stepping forward and really living out the concept of “people helping people.” But I wonder if we should be quite so proud?
How did we get here in the first place? I’m not talking about the government shutdown but about the poor state of financial health in so many of the households we support. We’ve all seen the reports, that about half of households in the US don’t have $500 in liquid funds to cover an emergency. An unexpected medical bill, a broken refrigerator, or a shutdown of the government means those families are scrambling to survive and are forced to make some difficult decisions. As the financial providers to so many of those households what can we do fundamentally shift this dynamic?
I’d suggest that Credit Unions need to supercharge their efforts to get their members to save. Members know they should save and based on a study by the Common Cents Lab at Duke over 90% of low and moderate income household can identify at least 3 behavior changes they could implement to start saving small amounts today. Credit Unions need to aggressively make it easier for their members to save – and here are a few ideas that some credit unions have implemented:
1. Default new members into an automatic saving plan that moves a fixed amount of money from checking to savings each payday. The program is fully disclosed at time of enrollment and members can opt out at enrollment or any time in the future – but our experience is that most don’t opt out and the balances in the savings account are pretty sticky.
2. Tellers ask members cashing checks if they would like to deposit some of the money into their savings account. Credit Unions have seen 10-15% of members take advantage of that suggestion.
3. Set small goals that are easily and fairly quickly achievable and then build from there. Behavioral Science tells us that we are much more motivated to accomplish a goal that seems close. Start with weekly or monthly goals, provide regular feedback and celebrate the successes.
4. Round up loan payments and put the “excess” funds into their savings accounts. Turns out the conversation is easier than you might think – that car they are financing is going to need tires or maintenance at some point and the member will have funds to cover those costs.
5. Increase the visibility of your efforts to improve the savings levels of your members, create and celebrate savings goals the way you celebrate loan goals with your internal teams. And don’t forget to leverage your marketing messages and social media to reinforce the importance of savings.
These are simple things, but they work. Only an aggressive focus on generating new ways to help members save with help us turn this problem around. Your members see you as their financial advisor; they believe the credit union is focused on improving their financial wellbeing. If you consistently send the message that savings are important, if you make it easier for them to execute smart savings behavior you will see results. Try it!