Should Credit Unions Be In The Business Of Financial Literacy?

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:

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.

CU Industry HealthScore - FINRA State Comparison
CU Industry HealthScore - FINRA State Comparison

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!


  1. I thought this was a joke until I read the full post.

    Then I remembered what Einstein said (roughly) – Not everything that can be measured is important and not everything important can be measured. I think we’ve seen the end of “quants” as decision making tools (at least in the land of Wall Street and the Corporate cu’s – out Great-great-great grandchildren will be paying for these debacles at the rate they are being addressed.) This is a classic “measure and apply” process that is so far off base it’s almost laughable.

    Ok… To the meat of the story — It was stated in the post: “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.”
    This misses the very core of who we are and how we act.

    Financial literacy is at the very core of what we do. We banded together to form cooperatives to have better financial outcomes. The phrase “member service” means serving the financial needs of the members. By educating them about the difference between us and other financial institutions, we not only provide them the better choice, we give them the knowledge to become more financially independent. Loan officers don’t just blindly take orders for loans… they counsel the members… to make the BEST decision. Our investment officers likewise don’t just open certificates; they counsel the member into making the BEST decision.

    The only outcome one can draw from this study is that there is no correlation between cu performance and member literacy because there are more things affecting cu performance than literacy levels of the members.

    So what? Are we now to stop helping our members avoid bad financial decisions? The folly of that is self-evident to me.

    There is a group that would look at this and take action. They only move where it increases performance… It’s called a BANK.

    Right church, wrong pew… the banking group is down the aisle on the left.

    1. 1st Thinker,

      Thank you for your post. To be clear, we are in agreement with the basic premise that counseling of members by seasoned credit union staffers, particularly when members are looking to make critical financial decisions, is a staple of the credit union/member service relationship. Members do not always come to the table with appropriate knowledge regarding the use of particular products. As a result, they absolutely should be provided guidance in order to make the best decision given their circumstances.

      I will say, however, that the headline of the post is illustrative. The question is whether credit unions should be in the “business” of financial literacy. I have seen a fair number of credit unions expend substantial time, energy, and money to promote broad financial literacy initiatives both in the membership and field of membership. If, as I wondered in the post, there is no performance benefit to the credit union (and when I say this, I mean benefit to the member-owners not simply the bottom line) then you have to question the wisdom of the effort. The reason I say this is because the time, energy and money spent on literacy campaigns may be better spent elsewhere – perhaps on enhanced applicant counseling, lower product pricing, lower fees, and the like.

      What I was actually hoping to uncover in my very brief analysis was an immediate, clear picture that in locations where financial literacy was high as defined by the FINRA study, general credit union health was above average. I would prefer to be able to say that broad literacy strategies result in direct performance benefits to credit unions (such as lower delinquencies and charge-offs, accelerated member growth, and in-depth relationships, to name a few), and to point to the FINRA study and the Glatt Consulting, LLC HealthScore calculation as anecdotal evidence to suggest that all credit unions should be bold in considering more aggressive literacy outreach efforts.

      Unfortunately I don’t see the immediate connection in the data, which leads to the suggestion that literacy strategy be thoroughly debated as to its wisdom. Again, I say this in relation to a broad literacy strategy and not to the one-on-one member service oriented counseling you mention in your reply to our post. That, I agree, is a worthwhile effort!

      Tom Glatt, Jr.

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