By Yvonne Sambrano
Each year since 2013, the Federal Reserve Board has spearheaded a survey designed to monitor the financial and economic status of American consumers. The results are usually quite typical—people want the opportunity to earn more money, people expect to make more money, people are concerned about money, etc.
However, a piece recently published in The Atlantic shines a light on a particularly troubling statistic: 47% of survey participants stated they would have trouble finding $400 to pay for an emergency. Not only would nearly half of the respondents struggle to find this seemingly small amount of money, but they also live their lives under a cloud of shame—shame they do not have access to these funds; shame for having to rely on others to cover this cost; shame they are part of the 47%.
Given this startling percentage, you can be certain that many members of your credit union community also find themselves in this unnerving predicament. As your members’ trusted financial partner, it is your duty to help them get on the road to financial security—at least to the point they could feel confident in finding $400 to pay for an emergency.
The Money Funnel
It’s vital to encourage your members to develop a budget, and save for emergencies. To do this effectively, members must first understand their money “funnel.” Help them recognize where their money is going, and how to identify areas where spending can be cut so excess funds can be redirected into a savings account. An appropriate goal for members to strive for is to keep a minimum of six months’ salary in their savings account. Once these variables have been identified, provide best practices (or a template) to develop a monthly budget that members can follow, and most importantly, stick with.
If your members are in debt, encourage them to get on a debt management plan. By laying out a clear-cut strategy, individuals who struggle financially can work towards a light at the end of the tunnel without feeling completely overwhelmed. It is advisable to recommend your members conduct regular debt checks. Some credit unions have departments devoted solely to these benefits for their low-income members.
Lastly, it’s important to offer financial education courses at your credit union to help members increase their financial literacy. These classes should include lessons on money management, investing, saving for retirement, protecting against identity theft and even career advancement. Consider providing online resources as well, in case your members are unable or unwilling to attend an in-person class.
In the credit union world, members are like family, and no one wants to see their family go through a challenging situation alone. Given the gravity of this issue, it’s absolutely paramount that credit unions begin implementing these foundational initiatives now, and commit to cultivating new programs geared toward pulling low-income members out of the 47%. Left unchecked, the situation will undoubtedly grow more dire.
Yvonne Sambrano is Senior Lending Solutions Manager at EPL, Inc., Birmingham, Ala.