USA Today posted the following headline in today’s issue:
3 Northeast states are home to most fiscally responsible
The news organization was reporting data from a study conducted by the FINRA Investor Education Foundation, a foundation supported by the Financial Industry Regulatory Authority (FINRA), and the headline caught my eye.
A little bit about the foundation:
The mission of the FINRA Investor Education Foundation is to provide underserved Americans with the knowledge, skills and tools necessary for financial success throughout life. The FINRA Foundation envisions a society characterized by universal financial literacy.
The folks at the FINRA Investor Education Foundation set out to determine benchmark data regarding general financial literacy across the nation. Here is the description of the survey effort:
In consultation with the U.S. Department of the Treasury and the President’s Advisory Council on Financial Literacy, the FINRA Investor Education Foundation commissioned a national study of the financial capability of American adults. The overarching research objectives were to benchmark key indicators of financial capability and evaluate how these indicators vary with underlying demographic, behavioral, attitudinal and financial literacy characteristics.
The resulting data is grouped in national, regional, and state segments. You can find survey results presented via an interactive map here: http://finra.pninteractive.com/index.html
When I first read the USA Today headline I wondered if the Credit Union Industry HealthScore that Glatt Consulting calculates each quarter, when broken down by state, would match the general results of the FINRA study — perhaps showing a strong correlation between financial literacy and credit union performance. The study suggests that New York, New Jersey and New Hampshire lead the nation with the best overall results in the FINRA foundation’s study categories, while Oklahoma and South Dakota are at the bottom.
With the exception of New Hampshire, the quick comparison of the HealthScore performance of these states showed the opposite of the FINRA results. Here is a chart illustrating our HealthScore results for the top and bottom states in the FINRA study.
Our question, then, is what would cause the HealthScore of a collection of credit unions in a state to be opposite of what one would expect? Wouldn’t you think that the overall health of credit unions would be better in a state or region where the underlying financial literacy of consumers is above average?
Unfortunately, at first glance, there is no singular driving factor that contributes to the difference. At first I thought that the fact that more consumers in Oklahoma and South Dakota used non-bank financing resources than in New York, New Jersey, or New Hampshire was a contributing factor. For example, our recent HealthScore for New Jersey credit unions shows a lower statewide credit quality component score than Oklahoma or South Dakota, which could mean that perhaps the more risky consumer lending taken on by non-bank entities such as payday loan shops in the bottom states was shouldered by the credit union community in New Jersey. Though a realistic hypothesis, the result was not true for New York State, which has a credit quality score better than the national average.
While I dont’t have immediate plans to search the data more thoroughly to identify possible correlations between financial literacy and credit union health and performance, the results of my quick analysis does make me wonder about the wisdom of diverting credit union resources into financial literacy programs. Financial literacy programs are certainly important, but whether it is the duty of credit unions to carry them out should be thoroughly debated — particularly if improved literacy has no discernible positive impact on credit union performance.
If you have an opinion on this issue, please share it in the comments box below!