NEW YORK– Financial coaching has a positive impact on credit unions and their members, according to new brief released by Inclusiv.
The paper, “The Social and Financial Impact of Financial Counseling in Credit Unions,” published with support from MetLife Foundation, analyzes the social and financial impact of Pathways to Financial Empowerment (Pathways), the first outcome-tracking platform that leverages technology for the delivery of best-in-class financial coaching and counseling to improve the financial health of credit union members, according to the organization.
“Through Pathways, credit union financial coaches learn to deliver best practice financial coaching and utilize the Pathways impact-tracking platform to measure members’ financial health progress,” Inclusiv said.
Pathways was launched in 2015 as a means of helping credit unions integrate financial coaching into their operations so products and services are delivered as part of a member’s holistic financial plan, Inclusiv said.
Inclusiv and Neighborhood Trust reported they have found credit union members who participate in financial coaching gain access to affordable credit and products and improve their financial health.
Improving the CU’s Health
In addition, the organizations said financial coaching supports the financial health of credit unions, increasing the number of members who are eligible for financial products and demonstrating returns on investing in financial coaching as a service.
“Financial coaching in community development credit unions has long been an important tool in boosting financial health and wellbeing of underserved consumers,” said Cathie Mahon, president/CEO of Inclusiv. “This report demonstrates tangible benefits of this approach for the credit union as well.”
Justine Zinkin, CEO of Neighborhood Trust Financial Partners, added, “Trusted human guidance should be an essential feature of financial services, especially for low-to-moderate-income consumers who are unfamiliar with or mistrusting of the financial services system. Every day we see that when you give someone individual attention to build a plan, they are more likely to use products that matter to them. Pathways proves that financial coaching can help people leverage products as part of a holistic financial plan to achieve their goals and is smart business.”
What the Data Show
According to Inslusiv, of clients who participated in Pathways financial coaching:
- 58% improved their credit score, with an average improvement of 38 points, six-to-12 months after an initial coaching session.
- Nearly one-in-five subprime clients improved their credit score enough to rise above the 620 threshold, significantly expanding their access to affordable products. Among this group, the average score increase was a dramatic 66 points.
- Roughly 10% opened new savings accounts at their credit unions (including CDs, money market, etc.) totaling $740,084, which is especially impressive considering their median income is only $26,000.
- Through the first quarter of 2019, clients have already taken out over 3,000 new loans—totaling nearly $22 million—at credit unions, including small dollar personal loans, credit builder loans, auto loans, credit cards and home equity loans.
- Clients who have taken out small dollar personal loans are saving anywhere from 100% to 600% in interest when compared to a typical payday loan and are successful in those loans with a delinquency rate of just 3%, lower than the U.S. personal loan delinquency rate for all credit tiers of 3.6% and half of the 6% average default rate for payday loans.
- Auto borrowers have saved $525,000 in interest at an average of nearly $1,000 per person.
Other Findings
As for the credit unions participating in Pathways, Inclusiv and Neighborhood Trust said their analysis found credit unions could offset the costs of maintaining a financial coaching program in several ways:
- Generating revenue by growing responsible lending to borrowers with subprime credit scores, people who would have been rejected for loans and gone elsewhere if not for financial coaching
- Mitigating the risk of losses by providing financial coaching to borrowers who might have otherwise defaulted
- Raising additional revenue from new products informed by financial coaching and that better meet the needs of their membership
For info: www.inclusiv.org/pathways.