With inflation at record highs, how can credit unions help?

Inflation in the United States is higher than it has been in nearly 40 years, sending prices for consumer goods and services skyrocketing across the country. Families bear the brunt of financial stress, with many struggling to afford the bare necessities and living paycheck to paycheck.

According to a recent report by PYMTS, 61% of consumers are living paycheck to paycheck in 2022, an increase of 9% since 2021. Even those who earn more than a quarter of a million dollars a year have struggling to make ends meet. As a result, many consumers are taking on more debt. In fact, credit card balances totaled $841 billion in the first few months of 2022, according to the Federal Reserve Bank of New York, and debt levels could continue to rise due to rising gas prices, housing costs and other essentials.

The good news is that credit unions can be a resource. Credit unions can implement financial wellness programs to help their members make smarter financial decisions in today’s economy. Doing this requires a mix of good resources and engaging learning opportunities with intuitive digital tools.

Encourage good money habits with rewards

Without proper financial education, many people struggle to make smart financial decisions, let alone have confidence in their decisions. Evidence has shown that financially savvy people are more likely to plan, save and have less debt. People with higher financial literacy also tend to be more resilient to economic downturns. However, it is difficult to get members to engage with the educational content.

Technology and intuitive digital tools can help. Credit unions have the data they need to provide guidance that provides members with educational opportunities that help them achieve financial well-being. These tips can educate members on a range of topics – from financial advice to debt management, student loan repayment and other areas of personal finance. Using the credit union’s online and mobile banking app marketing domain for education and advice is an easy opportunity to deliver value. Additionally, going back to basics and hosting online luncheons or literacy seminars can encourage members to take advantage of the great people and resources available through their credit union to work on their financial well-being.

Going further, some credit unions may choose to reward members for learning personal finance, creating an added incentive for those who want to improve their financial literacy. For example, if a member reads an article on budgeting and then successfully answers a few questions, they can unlock a reward, such as a small deposit into their savings account. Rewards-based programs are an effective way to help members establish more positive long-term financial habits, including managing a budget and growing their savings, which can lead to higher account balances. raised over time. Regardless of the current economic climate, saving is the first step on the road to financial well-being, so giving members a way to learn, save and be rewarded has a significant impact.

Guide members to the right tools

Credit unions can also help their members fight the effects of inflation by encouraging them to watch their monthly budget closely. Offering online or mobile personal financial management tools can support this by allowing members to set financial goals, track their progress, keep tabs on their spending and avoid overspending. When members have an overview of their current finances and future financial goals, it’s easier for them to maintain a budget, contribute to their savings regularly, and even avoid late bill payments.

Similarly, when credit unions have a more holistic view of members and their financial goals, they are better equipped to guide members to the right products and resources. To get a more complete view, credit unions need to look at different data points, including what members save for, what their transactional data looks like, and what content they click on when using online or mobile banking. . For example, if a member sets a goal of saving $5,000 for a new car, their credit union knows that information on car loans and rates would be particularly relevant to that member. As the member gets closer to their savings goal, the credit union can provide more specific details on loan options and current rates.

Where possible, credit unions should also advise members to set up personalized alerts in their online and mobile banking services based on their unique financial needs. For example, some members may want to receive alerts when their account drops below a certain balance to stay on track. Alerts have been around for a while, but this is a great opportunity to remind members of the tools that are already in place. This can help members avoid penalties related to missed bill payments due to insufficient funds or even overdraft fees.

Help members weigh the pros and cons of funding options

Let’s face it, there are also countless ways for consumers to borrow money these days, whether it’s signing up for a new credit card, applying for a loan online, or getting register for Buy Now, Pay Later (BNPL) financing. With record inflation and rising prices for basic necessities, many Americans have chosen to rely on other forms of borrowing, but that’s only fueling cycles of debt for some. Credit unions can educate members about the potential risks of using different financing programs and the risk of the interest and debt cycle they may find themselves in. For example, the credit union may promote consolidation loans to bring things together and help members get back on track. with their financial goals.

Whatever a member’s financial goals – whether it’s early retirement, buying a house or a new car – taking on more debt has an impact on those Goals. When choosing between forms of financing, such as BNPL, and other forms of credit, such as a personal loan or credit card, members should consider the impact of the line of credit on their ability to ‘save. Credit unions should help members weigh the pros and cons of each option based on their current financial situation and future goals.

Do they need to increase their long-term credit score to buy a house? If so, a traditional credit card might be the best option. Do they have to make a necessary purchase now and pay it back over time without a significant impact on their credit score? If so, BNPL may be a good choice. Or are they struggling to pay off their existing credit card debt due to high interest rates? A personal loan with a lower interest rate may be the best option.

Credit unions provide community for those in need

With inflation and the exorbitant cost of living, more Americans are living paycheck to paycheck than ever before. Many people were already struggling with their finances before the COVID-19 pandemic hit, but the pandemic has exposed more Americans to financial vulnerabilities, making it difficult to achieve financial well-being. sustainable. Losses of income due to layoffs, pay cuts and, of course, inflation have prevented many people from generating enough income or savings to weather an emergency or recession.

Fortunately, credit unions are in a unique position to support their members as they navigate the current economic climate. By educating their members and providing learning opportunities to improve their knowledge of personal finance, credit unions can help their members make better financial decisions and ultimately achieve their financial goals.

Kathleen Craig

Kathleen Craig Founder and CEO Plinqit Ann Arbor, MI.

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