Americans' Lack of Financial Literacy Is an Opportunity for Credit Unions

Modern marketing is all about catering to demanding, informed consumers. Perhaps surprisingly, marketing to informed consumers can sometimes be easier than marketing to uninformed consumers — after all, they’ve already done some research, perhaps scoped out some competing brands, and for financial institutions in particular, many consumers already have experience with at least one bank or credit union. However, how do financial institutions market themselves to people who aren’t informed? Banks and credit unions rely on a steady stream of financially literate consumers, the same people who deposit their paychecks into a checking account at regular intervals and take out loans to finance a home, auto purchase or new business venture.

But how do these same institutions reach consumers who lack basic financial knowledge? Those who have poor saving habits and are unfamiliar with banking as an institution? Many banks and credit unions are now realizing that this problem is actually an opportunity in hiding, and financial education is the key to proving value and building loyalty with a significant number of consumers. Not only are financial education programs trending among the c-suite in the industry, but at least one recent survey found that consumers seek out advice specifically from their financial institutions.

Let’s break down the financial situation of many Americans and how this is an opportunity for credit unions.

The average American adult has a poor grasp of financial literacy

It’s been widely reported that the average American adult does not have a good grasp of basic financial literacy. According to the 2015 National Capability Study by the FINRA Foundation, a survey of over 27,000 American adults found that two-thirds were unable to pass a basic financial literacy test.

The FINRA study asked participants simple questions related to personal finance, such as the basics of inflation, compound interest and home mortgage term rates. Of the participants, 63 percent received a failing score on the test. The 2015 study also revealed that 50 percent of respondents have no rainy day fund or emergency savings, 58 percent did not compare credit cards before choosing one and 26 percent have engaged in non-bank borrowing within the past five years.

More recent studies have surfaced, including one from the research firm Raddon, that found the majority of respondents are fairly confident about their own financial literacy but fail to answer basic financial questions correctly. In a 2018 survey of over 2,000 US adults over the age of 18, more than half (55 percent) rated their personal financial knowledge at an “A” (18 percent) or “B” (37 percent) grade. Only a mere 5 percent of respondents believed they had a failing grade of “F.” Survey participants were directed to take a quick test of their financial literacy, and results show that more than half of the respondents ended up receiving a failing “F” score, and only 6 percent scored a grade of 90 percent or higher.

These results highlight how financial education content, events and materials are an important opportunity for credit unions of all sizes to meet current and prospective members where they are and walk with them through the journey of improved financial wellness. Not only will this make lifelong loyal members, but it will also have a positive impact in your community. It’s a win-win scenario credit unions shouldn’t shy away from.