TUSCALOOSA, Ala.-Where do credit unions go from here to ensure that they are relevant for the next century?
Some of that will be answered in the role credit unions have played, both good and bad, in the financial meltdown of 2008. One area in which credit unions have played a role and that only needs more help is financial literacy.
A good portion of the American public is financially illiterate and didn't/doesn't understand what an adjustable rate mortgage was or what negative amortization means. Those interviewed for this report say credit unions have done a better job of teaching financial literacy than most other institutions, but given the size of the task, there's plenty of work left to do.
Credit unions need to take a leadership role in teaching financial literacy, believes Professor William Jackson, professor of management at University of Alabama and a research fellow at Filene Research Institute.
"It's easy to think that you can afford an adjustable rate mortgage when you don't understand how a large increase in your monthly mortgage payment will affect your overall monthly budget - especially, if you don't know how to make a monthly budget," said Jackson. "Many people don't know how to balance a checkbook; we don't place enough emphasis on financial literacy."
"Financial products aren't getting simpler; they're getting more complex," he continued. "A lot of this started on Main Street issuing adjustable rate mortgages, not Wall Street. Financial illiteracy is one of the reasons for the mess we're in."
Teaching financial literacy could be accomplished with local community groups that are under-resourced that have needs that credit unions can help. Other philanthropic organizations typically write a check and that's the extent of their involvement, a one-off experience. CUNA has been active in the National Endowment for Financial Education, which has been taught in hundreds of schools.
"Credit unions are in a position to find partners in the community with similar missions that are underserved in the community, like Big Brothers/Big Sisters, Inc.," said Filene's George Hofheimer. "They may be located in specific parts of the city that may need basic financial services, financial counseling and financial literacy. There is a misconception that community organizations serve only poor people; these organizations serve a variety of needs-parks, local issues, architecture."
Credit unions have a unique position to position themselves as an ethical provider of financial services, said Hofheimer, citing Vancity in Vancouver, B.C. as one good example. "There has to be a rethinking of how we do business by elevating the marketing function, by being more strategic and providing more resources to marketing. Marketing is a legacy of the past; it was always in a lower position."
Many credit unionists have called for a national brand, which has been tried, but has been difficult to get off the ground. Credit unions can't agree on what a national brand would look like; they are independent and lack homogeny in operations, which is a necessary ingredient for branding programs on the national level. Credit unions had national advertising campaigns in the 1950s and 1980s, and there was a major effort to insert public service announcements in the 1990s. Some credit unions have adopted the CUNA-developed tagline, "Where People are Worth More Than Money." But it has proved difficult to measure success during these campaigns as well as keep the contributions flowing.
Recently there has been renewed discussion about a national message for credit unions in light of the meltdown in other markets, and the growing unwillingness of banks to serve even their best customers.
In 1908 French-speaking, low-wage millworkers were being victimized by money-lenders in Manchester, N.H. A local priest, Father Pierre Hevey, invited Alphonse Desjardins to visit from Quebec and explain how credit cooperatives worked in his country. It led to the creation of St. Mary's Cooperative Credit Association, America's first CU.
In 2008, many low-wage workers are again being victimized by usurious lenders and their own ignorance. Middle-class citizens are feeling a painful squeeze, foreclosures have hit record highs, and small businesses are finding it difficult to find capital. CU pioneer Ed Filene observed that "Progress is the constant replacing of the best there is with something still better." One hundred years after that first credit union began operating out of its first manager's home, it seems there is plenty of opportunity for credit unions to help Americans replace what they are doing with something better.
