Originally appeared in CUES Credit Union Management
Engaging over-confident, over-stimulated young adults in financial education.
Simply stated, Gen Y faces financial pressures that will jeopardize and limit their economic opportunities. This, combined with a lack of financial aptitude and overconfidence in financial matters, can be a recipe for a grim financial future for the largest generation since the baby boomers. Here’s what your credit union can do to help.
According to a recent Filene Research Institute study—Gen Y Personal Finances: A Crisis of Confidence and Capability by Carlo de Bassa Scheresberg, senior research associate, and Annamaria Lusardi, professor and academic director of the Global Financial Literacy Excellence Center at George Washington University School of Business—66 percent of young adults have at least one source of outstanding long-term debt, whether student loan, home mortgage or car loan.
More than half (52 percent) of Gen Y study participants carried credit card balances from month to month in the last 12 months. In addition, 34 percent of the participants have used pawnshops or payday loans in the past five years.
To measure financial knowledge, the survey included a set of five financial literacy questions. Only 8 percent of the respondents answered all of the questions correctly. In contrast, 70 percent of the study participants rated themselves as having high financial knowledge.
First, many young people are ill-equipped to make major financial decisions, and second, young people confront a financial services marketplace that involves increasingly complex financial decisions.
Many young people transition to adulthood without having developed the basic financial knowledge, skills and behaviors that are critical for establishing healthy financial futures. Many factors account for this, but chief among them are that 1) in most U.S. states, schools are not required to teach young people personal finance, and 2) many parents are unsure about when and how to talk to their children about money. As a result, young people have their first formal financial experiences when they enter the labor market lacking practical money management training or skills.
While things might seem dismal, there are things your credit union can do to engage and help the next generation master their financial future.
Since today’s young adults are unaware they lack financial knowledge and are over confident about their financial management skills, they may be difficult to engage. One potential strategy might be to leverage this over confidence. Today’s young adults want to be at the center of their financial decisions, so an approach that recognizes and leverages this trait may provide better results than a more standard delegation of decision-making power.
Young adults should be steered away from high-cost borrowing products. Many young adults—especially those without a college degree—rely on alternative financial services like payday loans and pawn shops. CUs may be able to better serve these potential members, especially by segmenting the population of young adults according to education in addition to income.
Technology will have a role to play, especially mobile technology. In order to appeal to young adults and to help put them at the center of their financial decisions, your CU should have a Web- and app-based online banking system with easy-to-use personal financial management tools that work well on smartphones and tablets. Explore personal financial management tools from Geezeo, MX and Jwaala among others.
Financial Literacy is Key
Financial literacy cannot be taken for granted, even among highly educated individuals. The analysis in the Filene report reveals a striking lack of financial literacy. Even among young adults with high levels of education and income, financial literacy is typically low. That leaves the largest generation in U.S. history poorly equipped to deal with their assets and debt. Credit unions that seek to provide the best financial services to young adults must recognize the gravity of this failing and take an active role in mitigating it. Credit unions could actively tackle this problem by developing financial education tools that positively impact young adults’ decision making.
To most young people, financial topics are boring, confusing and far less interesting than watching a movie or going out with friends. It is unlikely that young people will seek out financial knowledge on their own, so it’s important to bring the information to them in an easy-to-understand and memorable form.
The earlier the better—more and more credit unions are forming partnerships with local schools and encouraging their employees to volunteer and teach in school classrooms. There are numerous free and inexpensive financial education programs your credit union can employ in the classroom. Here are four to consider.
Biz Kid$ is a PBS series that teaches the basics of economics and entrepreneurship. The National Credit Union Foundation is responsible for fundraising, outreach and administration related to Biz Kid$. A coalition of over 300 CUs and affiliates from across the country have helped exclusively fund Biz Kid$. This collective body has contributed over $14 million toward the show’s production. In addition to the TV episodes, there is a complete curriculum to help get students and CU professionals involved in the concepts from each episode. Find out how you can get involved and use the content in your community on the foundation’s website.
The National Endowment for Financial Education is a private, nonprofit national foundation dedicated to inspiring empowered financial decision making for individuals and families through every stage of life. NEFE provides financial education and practical information to people at all financial levels, including youth and adult financial education resources, training tools from the classroom to the workplace and research and consumer surveys.
The NEFE High School Financial Planning Program provides students in grades eight through 12 with the opportunity to develop personal-finance skills. This turnkey program will help you teach students how to handle and manage their money.
The Brass Student Program provides print and multi-media personal finance resources that connect with students in a fun, fresh way, all in a package that’s easy to use in class. Brass’s experience-based resources meet all state and national standards and can be used as a stand-alone offering or in conjunction with other curriculum programs. The ready-to-use classroom materials are designed to prepare students for life after graduation and the presentation tools are ideal for CU employees to connect directly with students and teachers by taking their expertise into the classroom. In addition, Brass provides teachers with standards-based lesson plans and activities designed to give students a meaningful learning experience.
Banzai is a software-based online financial literacy program designed for the classroom. Bringing variety into a subject helps keep students engaged, and that’s when real learning takes place. Banzai includes interactive online tools, as well as printed materials, to keep students of all levels interested. CUs sponsor the program at local schools so teachers and students can use the software for free. Banzai can be used as an addition to business, financial literacy, or family and consumer sciences courses, or teachers can also build an entire course around Banzai.
Beyond High School
My company, Currency Marketing, has launched a financial education content product called It’s a Money Thing. It’s a Money Thing is a collection of financial education content designed to engage and teach young adults (ages 15-25) while setting your CU apart. Each content pack tackles an important financial topic and includes a video, infographic, article, presentation, handout and social ads branded with your CU’s logo.
To date, more than 50 CUs from across the U.S. and Canada are using the monthly It’s a Money Thing content. CUs range in size from extremely large, like $10.4 billion/602,000-member Schools First Federal Credit Union, Santa Ana, Calif., to very small, like $28 million/4,600-member Element Federal Credit Union, Charleston, W.V.
Element FCU is using the content in very interesting and effective ways, including creating a special financial education video section on its website posting the infographics, presentations and social ads on its Facebook page, engaging with members in branch with the printed handouts and utilizing the articles as blog content. “We were attracted to It’s a Money Thing because it’s great marketing and educational content at a very affordable price,” says Linda Bodie, Element FCU’s CEO. The CU’s young members are finding the content useful, as well. A 22-year-old student member shared this testimonial: “It’s a great way for young people to learn about their credit and a bunch of other financial stuff they wouldn’t normally fully understand. I’ve shared the It’s a Money Thing videos with a lot of my friends. They all loved them.”
The Time is Now
Today’s young adults are getting deep into debt and struggling to meet payments on short- and long-term obligations. They use credit cards in expensive ways, tap their retirement and bank accounts and are relying on alternative financial services. Even though most young adults feel good about their financial knowledge, data show they lack the basic skills needed to make savvy financial decisions.
The promotion of financial capability is needed among young adults. Programs aimed at improving financial literacy could help young adults minimize the costs incurred in managing their debt, improve their financial safety net for emergencies and fortify their financial security. The gap between the amount of financial responsibility young adults have and their demonstrated ability to manage financial decisions and take advantage of financial opportunities is rapidly widening. CUs need to take significant action to alter this.
Tim McAlpine is president and creative director of Currency. He is a credit union advocate best known for developing CUES Next Top Credit Union Exec and the Young & Free program that credit unions from around North America are using to connect with new young adult members. Subscribe to his blog and follow him on Twitter.