Exploring a Holistic Savings Concept with Credit Unions

The interviews with credit unions that informed this blog were made possible thanks to the support of Inclusiv whose mission it is to help low- and moderate-income people through credit unions. 

A few years ago, we embarked on an effort to identify savings features that could help low- and moderate-income (LMI) people save. We decided we would share that research with financial institutions that were accessible to LMI people and responsive to their needs. That is why we chose to focus on credit unions.  

As we recently wrote, millions of low- and moderate-income (LMI) people are shut out of the bank system, bear high costs of banking or experience racial discrimination in lending. Credit unions can play an important role in addressing these issues because of their unique governance structure: where traditional banks are accountable to shareholders, community-owned banks are accountable to their members. As Elizabeth Escobar, Chief Business Officer at Express Credit Union, explained in our recent blog Banking for the People, “The philosophy of the credit union industry is People helping People, therefore it’s baked into all that we do.” 

All-In-One Concept

We theorized that consumers need comprehensive solutions that enable them to save for different savings horizons and support immediate needs without sacrificing future goals and security. With generous support from Prudential, we sought to test our theory—that an “All-in-One” (AIO) solution that addresses now, soon and later savings needs in one place would appeal to and better meet the needs of LMI consumers.

To test this theory, we first developed the concept by informing it with research and practitioners’ input. The concept centers on the ability to simultaneously save for multiple goals through pre-set, customizable savings packages (see graphic above). Additionally, it includes other features that create a holistic experience (see graphic below).  

We also tested the concept with LMI community members through interviews in four locations across the country. The results of this testing and more information on the product features are detailed in this research report. The results were clear: there is interest in an AIO solution to manage savings needs. Moreover, most interviewees save consistently but are facing significant economic barriers that keep them from getting ahead. The results have implications both for policymaking, to dismantle barriers to savings, and for financial institutions, to consider adopting solutions that will allow consumers to save for different goals simultaneously.  

Credit Union Feedback on AIO Concept

We spoke with 12 credit unions to get their feedback on the AIO concept. Our overarching vision is to understand whether these features could fit together into one solution because our research indicated this has the potential to create a meaningful savings experience. However, we also wanted to hear credit unions’ perspectives on these features, their potential benefits and risks, their viability and whether they would be impactful for LMI members. We needed to test the wisdom of our conclusions especially since we are not financial service providers, and we don’t work directly with LMI people. We entered these conversations accepting the possibility that our research might not reflect the realities of specific demographics or work for credit unions. In other words, if credit unions’ feedback led us in a different direction, we would be open to changing the overarching goal of fitting these features into one experience.  

Generally, we received positive feedback on the holistic savings concept. But no one endorsed every feature (separately or in a single product), and some expressed concern over some of the features, especially emergency credit. We organized the feedback into three broad themes:  

  1. Features that received a lot of enthusiasm and were generally adopted. 

  1. Features that were seen as positive but not high priority or not offered.  

  1. Features that generated some concern or are a challenge to adopt.  

Features Receiving Enthusiasm 

Financial coaching and counseling were offered by every credit union we spoke with in some shape or form. Additionally, every credit union identified coaching/counseling as services that provide a lot of value to LMI members. Specifically, credit unions like the relational aspect of the service, and coaching/counseling’s ability to tailor support to each member’s unique circumstances. However, we noticed differences in how the service is offered. Guadalupe Credit Union has a strong financial coaching program with five coaches hired “in-house” (see picture below). Conversely, other credit unions outsource their coaching/counseling by partnering with organizations like Balance or GreenPath.

Every credit union we spoke with said free deposits and withdrawals are important to them and their members. And, while it’s unrealistic to expect credit unions to offer 100% free deposits and withdrawals on every account (for example, long-term savings accounts have restrictions built in by design), every credit union keeps restrictions and fees to a minimum.  

Almost every credit union had the same requirements we suggested for opening accounts. Some had slight differences. For example, one credit union required a physical address instead of a mailing address. Other credit unions offered more flexible requirements. SCE Credit Union, for example, allows members to use valid government identification, including from foreign countries, to open an account. Finally, most had no minimum balance requirements, while a few had a requirement close to zero.  

Features Received Positively but not High Priority or Not Offered 

The savings packages in the choice simplification and cues feature were well received by every credit union but offered by few of those we interviewed. Many expressed that they liked the savings packages because they give people an idea of how to organize their savings goals. However, some suggested that the packages should be customized because the amounts could be overwhelming to members. One credit union suggested that savings goals could be better developed with a financial coach. SCE Credit Union offers one-on-one coaching sessions to members where individuals set savings goals. Additionally, SCE FCU offers an online personal financial management tool that can support members with money management and goal identification (see picture below).

Interest and rewards generally received a tepid response. Few credit unions we spoke with offer cash rewards or raffle rewards. The St. Louis Community Credit Union offers a prize-linked product, with five monthly winners for a one-time $100 prize and an annual winner with a prize of $2,000. However, others said a raffle-linked prize requires too much effort for little reward. In general, folks identified this as a nice idea but not one that will meaningfully move the needle towards improving the well-being of their members in the long run.

Finally, auto-enrollment into retirement accounts was only offered by one credit union. Taken separately, retirement accounts in general seem to be on the decline. Two credit unions shared that interest in retirement accounts is dwindling. Both noticed that younger members are less interested in retirement products than older ones.  The auto-enrollment feature is meant to automatically identify individuals who are ready to save for retirement and have the means to do so. The technology required for this type of automation is costly, especially for small credit unions.

Features Received with Concern or are a Challenge to Adopt 

Tracking progress and sending savings tips and reminders by email or text are services that pose technological challenges to credit unions. Many members were open to adopting these features but simply don’t have the technology to do so. Self-Help Federal Credit Union is one of the few credit unions that offers a texting feature to help them keep in touch with clients. However, they face a technology barrier to individualize and automate texts.  

Finally, offering emergency credit was a feature that generated some concern among credit unions we spoke with. One credit union pointed out that predatory lending and income volatility are products of labor inequities and regulatory issues that cannot be solved by a small-dollar loan. That is, we can address income volatility by raising incomes and stabilizing work schedules for low-income people. Likewise, predatory lending can be curtailed by enacting laws or regulations that address skyrocketing costs and practices that trap borrowers in a cycle of debt. 

If emergency credit is going to make a real difference in the lives of LMI people, it needs to be truly affordable and designed with the best interest of LMI members in mind. The National Consumer Law Center (NCLC) offers guidance to help define a safe and affordable alternative loan which includes a 36% interest rate cap and rules preventing a lender’s access to the borrower’s bank account. In that same report, the NCLC points to credit unions as a promising alternative to payday lenders because “many credit unions offer products that meet all of our criteria, and a number of others come close.” Indeed, many credit unions we spoke with offered affordable short-term loans with innovative designs. HOPE Credit Union for example, offers a $1,000 loan on a 12-month term up to 18% APR of which the borrower can access $500 in the same day and the rest is put in a savings account in the borrower’s name. Others we spoke with had similarly affordable interest rates, ranging from 15% to 28% APR.     

Looking Forward  

Broadly, there is interest in a holistic product like the AIO concept, but the actual features that compose that product will have to be explored further for viability across credit unions. Future efforts should include conversations with a larger group of credit unions. Additionally, we remain open to taking the AIO concept in different directions, perhaps by suggesting that credit unions adopt a product with a different combination of features.  

Finally, many credit unions pointed to many of the same barriers that LMI people expressed to us in earlier interviews. Any effort to improve LMI people’s financial well-being shouldn’t stop and end with a new product. We need to adopt policy changes like relaxing Know Your Customer rules, raising wages and strengthening consumer protections. Not to mention that, as we’ve pointed out in the past, credit union resources pale in comparison to traditional banks’ resources. They need renewed support and investment from the federal government to be set up for success.  

 

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