LOS ANGELES—A recent report from a personal finance website, paints a dismal picture of consumers’ savings habits seven years after the Great Recession—which represents both a challenge and an opportunity for credit unions.
With a history of promoting thrift, credit unions should be in prime position to help reshape how consumers save, but the emphasis on lending—the real bread and butter for credit unions—can sometimes put savings on the backburner. But if the recent study by GOBankingRates.com is any indication, it may be time to get it back on the frontburner.
According to the study, almost two-thirds (62%) of Americans have less than $1,000 in their savings accounts, while one-fifth (21%) of adults don’t even have a savings account.
Moreover, only 14% of adults have at least $10,000 socked away, while a sobering 28% (or nearly 70 million people) have a zero balance in their savings accounts.
To read more about the study,
“It’s troubling how many Americans aren’t thinking about long-term planning or retirement, with little to nothing stashed away in a savings account,” said Casey Bond, editor-in-chief of GOBankingRates.
The report also unearthed some interesting and unexpected demographic data related to savings. For example, Americans belonging to “Generation X” (now between the ages of 35 to 54) are the most likely (at 31%) to have no balance in their savings accounts. And only 16% of “Gen-Xers”—comprised of people who should be in their prime earning years and, therefore, also in their prime savings years—reported having savings of $10,000 or more.
Knowing how to reach this generation may come down to understanding why so few are saving more money right now.
“It’s hard to say the exact reason [why] Gen-Xer's savings accounts are less robust than other [for] generations,” said GOBankingRates’ editor Elyssa Kirkham. “While they do tend to have more expenses, they are also at the height of the careers and are likely to have much higher incomes and more earning power than Millennials to help cover costs. It could be that some respondents in this generation keep less in their savings account because much of their savings are held in investments or retirements accounts rather than a savings account. [Baby] Boomers, on the other hand, are near or in retirement and might need to keep more liquid savings to make up for a lack of income.”
The much-sought-after Millennials likely are good savers because they came of age during the worst economic crisis since the 1930s, Kirkham noted.
“They [Millennials ] have seen first-hand the consequences of not saving enough,” she said. “Many of them watched [their Baby] Boomer parents struggle to hold onto illiquid investments as the value of stocks deflated and house values dropped. This has given [Millennials] a conservative approach to their finances. Millennials also have a greater need and desire to keep an emergency fund—financial security is something they really value.”
Mary O’Rourke, EVP/chief of staff at $6.5 billion Randolph Brooks Federal Credit Union, Live Oak, Texas, commented that Millennials understand the implications of unwise financial decisions, and they are, for the most part, preparing for any eventualities they may face. “Millennials may be making different financial decisions than other generations,” she said. “They may not be saving as much in total dollars as previous generations, but they are saving a better percentage of their finances.”
To promote savings across the board may require a less across-the-board approach, credit union executives suggested.
Art Moshos, AVP of certificates/IRA operations and deposit pricing at $70 billion Navy Federal Credit Union, Vienna, Va., said members have actually been saving more since the Great Recession. “In 2007, we had 375,000 members who owned a savings product,” he told Credit Union Journal. “That number [has] increased by 83% since… reaching almost 690,000 in 2015. Lending growth has picked up as the economy has improved recently, and Navy Federal members continue to reach record savings growth year over year.”
Navy FCU encourages its members to save by providing competitive savings rates through a variety of products beyond its basic savings account that all members have to have. In addition to the basic savings account, Navy Federal also offers an array of certificate products for beginner and small savers including the 3% Special EasyStart and the SaveFirst certificates. “These products aim to encourage systematic savings by featuring attractive rates, low minimums and allowing additional deposits,” Moshos noted.
He cited that in 2015, 62% of Navy FCU’s certificate owners had a “small savers” product, an increase of 8% from 2012.
Randolph Brooks’ O’Rourke said that it’s important to meet credit union members where they are in their financial life and to make the products and services they need as accessible as possible. “Many people dislike even thinking about money, so instead of presenting information in an abstract format with lots of industry jargon, it’s important to make sure they see how the processes of buying, saving and spending relate to them specifically,” she said. As such, RBFCU provides members with financial resources and education that help them understand their financial options. “For example, we provide free financial education courses, including programs to encourage students to begin saving early,” she said.
RBFCU also helps members by offering them other options beyond just savings accounts—members can open a savings, money market, certificate or IRA account.
“We [also] pay members cash back on their debit card purchases, which gives them a little extra money back for savings as well,” she added. “And, finally, we educate them on the savings options we have—like savings accounts, money market accounts, certificates and retirement funds.”
Millennial members of Navy Federal are seeking to put more away in their savings, Moshos said. “Our research found that 77% of Millennials surveyed planned to save more this year compared to last year,” Moshos noted. “From 2012 to 2015, we have seen an increase of 45% in the number of Millennials taking up certificate products at Navy Federal. At the same time their average balance in these products has increased by 6%, proving that Millennials are in fact saving more.”
When Navy interacts with its Millennial members, Moshos said, the focus is on the importance of making regular contributions to savings. “Part of making savings more successful is the creation of a budget,” Moshos stated. “If our members can have a plan of where they are spending their money, they can take a more dedicated approach to making contributions to savings each paycheck.”
As for the oldest members of Navy Federal, they have an average balance of $21,000 in their savings accounts, Moshos indicated. Navy FCU also found that members age 65 and older tend to gravitate towards longer-term certificate and IRA products, whereas someone in the Millennial age group tends to keep their savings in shorter term or basic savings accounts. “Generally speaking, seniors have the greatest savings balances and are most focused on rates because they view dividends as an income stream,” he added.
Still, lending is where the money is for credit unions, so that can make balancing the desire to promote thrift with the need to promote spending/borrowing.
But Ben Rogers, research director at Filene Research Institute, noted that the philosophies and policies of credit unions are pretty well aligned with the interests of their membership.
“Credit unions encourage their membership to keep their households financials very stable,” he said. “A healthy credit union is contingent upon their members being financially strong—hence having a substantial savings, but also having the incentive to take out loans to make big-ticket purchases. Such a scenario benefits all parties.”
