Measurement matters in improving financial health

The majority of people in America expect their primary financial institutions to help them improve their financial health, yet only 14% “agree strongly” that they are actually receiving this service. This gap in expectations is a prime opportunity for credit unions to be on the forefront of financial health and to compete effectively by addressing the holistic needs of their members, employees, and the communities they serve. Taking this step can build long-term, sustainable member relationships by improving member outcomes.

In order to further understand the specific financial challenges credit union members face, the Financial Health Network assessed the financial health of approximately 500 members and employees with the support of Members Development Company (MDC) and PSCU. Their financial health scores were calculated based on eight indicators of financial health, and then were compared to national, regional, and credit union-specific benchmark data. These assessments were completed using a newly developed technology platform, called FinHealthCheck; an insights platform that helps organizations optimize for financial health by providing measurement, benchmarking, and analysis tools that guide action against member needs. More information is available at finhealthcheck.com.

The data revealed that over 60% of credit union members are struggling financially. The majority of struggling households lack access to effective daily financial systems, find it challenging to weather financial shocks due to limited liquid savings and credit options, and are not well-positioned to pursue long-term financial goals. Similar financial health challenges were observed among credit union employees, as the analysis found that more than 60% of credit union employees are struggling financially.

Improving Financial Health Starts with Relevant Member Data

Measuring members’ and employees’ financial health is a key step toward improving financial health for all. In recent years, positive gains in Americans’ general financial well-being have been widely reported through broader economic indicator growth from 2018 to 2020:

• Real hourly wages – particularly for middle and lower-wage workers – actually increased.
• The unemployment rate was on a steep decline (up until last year).
• Consumer spending accelerated because of minimum-wage increases across the country and millennials (people born from 1981 and 1996) surpassing baby boomers (people born from 1946 to 1964) as the largest living adult generation.

Despite these macroeconomic gains, credit union members’ financial health remained stagnant. This difference highlights the need for a measure that is applicable at the individual level – one that matters the most to people. We call that financial health.

COVID-19 has Increased the Need for Financial Health

Before the pandemic, during a booming economic period, our organization found that only 29% of the total U.S. population was financially healthy. While data shows that income is correlated to overall financial health, nearly 50% of households making at least $100,000 per year were already financially coping or vulnerable in 2019. The COVID-19 crisis has only served to exacerbate financial health needs. The 2020 U.S. Financial Health Pulse found that financial health disparities widened by race and income, and persisted across gender over the past year. With so many people just trying to get by, individuals and families need help navigating how to spend, save, borrow, and plan in ways that improve their chances of long-term financial success in the current environment. Credit unions can play a crucial role.

Becoming a Financial Health Provider

Regardless of channel and product offerings, credit unions need to broaden their financial health strategy. They are uniquely positioned to become more than a financial services provider and differentiate themselves in an increasingly saturated marketplace.

The Financial Health Network, PSCU, and MDC are continuing the important work of leveraging these project findings to identify products to meet the needs of members and employees who are struggling financially. Watch for updates, but for now, embrace this refined focus on what matters most to our members and employees: financial health. You can also explore how to integrate financial health measurement through the FinHealth Score® Toolkit.

Contributors and advisors to this project include Merry Pateuk (PSCU), Sarah Lietz (Members Development Company), Gigi Hyland (National Credit Union Foundation), Steve Koenen (Altra FCU), Cynthia Campbell (Balance), Jimese Harkley (CUES), Jill Nowacki (Humanidei), Jim Morell (Peninsula CU), Bob Lockett (Workers CU), Jodi Rathbun-Briggs (Greylock FCU), Lori Timm (Allegacy FCU) and Chris Wolgamott (Meritrust CU).