Many banks put financial literacy education squarely in their Community Redevelopment Act (CRA) effort using the mindset that financial literacy is an affliction of low-to-moderate income households. The reality is, financial illiteracy affects us all. Some banks believe consumer financial literacy is not only good for consumer prosperity but also makes good business for banks. While this seems logical, it has been hard to prove. We now have data from Raddon Research Insights proving that not only is financial literacy good for consumers, but consumers actively seek out financial literacy from their trusted primary financial institutions. All this adds up that banks that teach financial literacy to current and prospective customers can improve engagement, grab new customers while enjoying a measurable, and significant ROI.
Going To The Data
The results of the Raddon study show that financially literate customers are also more profitable bank customers because they are credit-driven and have a higher usage of depository products. Moreover, customers are more likely to bring business to their financial institutions that teach them financial literacy. While all of this data reveals a strong positive ROI for banks that teach financial literacy, it also revealed something surprising.
The average American dramatically overrates their own level of financial literacy. This dichotomy between consumers benefitting from financial literacy and not knowing what they don’t know creates a unique opportunity for banks who teach financial literacy to create a win-win in their communities: financially literate consumers make better financial decisions and are more desirable bank customers.
We think that Community banks are uniquely well-positioned to take advantage of this opportunity to develop financial literacy programs. Community banks have a local focus and understand the demographics, economics, and psychology of their communities, unlike any other financial institutions. In numerous examples, when community banks offered financial literacy programs, they gained substantial ROI by attracting new, high-value customers, increased brand awareness and built goodwill within their communities. They also help to differentiate the community banks from larger banks and online bank alternatives.
And there’s more good news - Community Banks have substantial resources readily available for them to establish and implement financial literacy programs that are purpose-built for their unique communities.
The American Bankers Association website offers an excellent primer on how to get started creating financial literacy programs that will work in your community. Their tips include:
- Identifying and connecting with local educators, the School Board or others who understand how programs get developed and implemented in local schools.
- Leveraging local connections to identify what types of information local consumers lack or most need
- Consider targeting underserved markets by working through the United Way or other non-school groups
- Create partnerships that help “share the load” or tie in with existing programs at the bank
An Easy Out-of-the-Box Solution
Another invaluable resource is the FDIC Money Smart website, which is a comprehensive education program with resources for both individuals who want to learn about finance and those who want to teach it in their communities. This website offers complete curricula for teaching financial literacy to students (broken out by age), adults, older adults, and small businesses. The website includes videos and all teaching materials that can be downloaded and used in classrooms or made available at your bank. Below is a sampling of the coursework offered through FDIC Smart Money for High School aged students:
Of course, there are many third-party programs and applications, such as EVERFI, that can also help banks not only deliver quality content but help save internal time.
While it is clear that financially literate consumers make desirable customers for the banks that teach them, not all programs may track to long-term financial health for their participants. According to a Reuter’s article from August 2018, research suggests that pairing financial literacy efforts and tangible experience has a greater impact on positive money management: higher credit scores, less debt, and higher savings rates. Examples of this have included:
- Fifth Third Bancorp sent two empowerment mobiles to provide financial education and access to loans for low- and moderate-income community members within the bank’s markets. The bank received more than 1,800 loan and product referrals through these empowerment mobiles in 2017.
- JPMorgan Chase, Santander Bank, Bank of America partnered with nonprofits and the public sector to provide easy access to accounts for summer youth employment program participants as they are coached on their finances.
- America Saves and the Cities for Financial Empowerment Fund facilitated direct deposit accounts for their participants in their summer employment programs.
- Community Spirit bank opened a branch at a high school in Alabama. Since January 2017, students who receive parental permission can also open checking and savings accounts for a $1 fee to keep until they are 24. This in-school branch has had 200 accounts opened and $77,000 in deposits.
It is clear that when consumers are given an opportunity to both learn and practice financial literacy from the bank that provides them with education and access to banking tools, consumers are more likely to develop an early and long-lived relationship with that bank. This is an opportunity that community banks cannot afford to ignore.
Submitted by Chris Nichols on September 03, 2019