July 13, 2010

Credit Union Management magazine’s Web-only “Teaching Smart Money Management” column runs the second Tuesday of every month.

Sometimes, hitting rock bottom can be a good thing. Whether it’s an addiction, an unhealthy relationship, or a job you’ve been putting up with instead of enjoying, it often takes a situation where things get worse to make people want to take steps to make it better. This, it seems, is the explanation for why Americans are more financially aware than they were before the current economic crisis hit.

Take a look at the National Foundation for Credit Counseling’s 2010 Consumer Financial Literacy Survey and you’ll see some undeniable improvements. For example, 43 percent of Americans are now tracking their spending. That’s up from 39 percent in 2007. In that same year, 41 percent of American adults graded themselves a C, D or F in financial literacy. Now, only 34 percent rate themselves so poorly.

Another positive result is that of the people who are now spending less because of the current economic climate, 49 percent said they would continue that pattern if their financial situation improved. I’m guessing the rest of the money would go toward savings and/or debt reduction, a further reflection of an increased awareness of the importance of having a nest egg and an understanding of the high costs of carrying debt.

However, the work isn’t completely done yet.

Asked whether they were saving more, less or the same as last year, 36 percent of survey respondents said they were saving less. I’m guessing that number is coming from those who lost jobs or, for whatever reason, have less to save. And yet, consider this:

56 percent have no budget at all.

30 percent have no savings outside of retirement.

5 percent (not a big percentage, but it represents 11 million Americans) don’t know how much they are spending on basic categories such as food and entertainment.

So, the need for financial literacy, while probably less than it was three years ago, is still pretty significant.

Not surprisingly, Americans agree. Of those surveyed, 78 percent feel they would benefit from advice and answers to everyday financial questions. And this is where your financial literacy efforts are geared. It’s great to know you have an audience, isn’t it? So, if you’re currently offering a financial literacy program or are thinking of doing so, there’s a good chance your members WANT this information.

However, here’s another statistic from the report. It’s one that I personally found somewhat surprising. When asked where they learned the most about personal finance, only 4 percent said the Internet.

Another 5 percent said at work, and 8 percent from financial professionals (are credit unions included in that number? I wasn’t sure where, if at all, credit unions were represented). Another 15 percent learned through self-help book or the media, and—here’s the clincher—a whopping 41 percent learned the most about personal finance from their parents or home.

So much for parents not giving over information about money. There seems to be more information on personal finance available—for free—on the Internet than there is in the typical American household. But apparently, parental influence is alive and well.

If that’s true, you might want to take another look at your financial literacy program. Instead of teaching smart money management to everyone, at varying age levels, how about preparing parents to bring the lessons home to their children, and turning those parents into financial literacy teachers for your up-and-coming members?

I realize this won’t work for everyone, because it depends so much on the demographics (age, stage of life, etc.) of your members. But, if you’re trying to reach a younger demographic, offering classes for parents to help their kids become more financially savvy has some very real advantages. First, no one else is doing this. Financial literacy classes have become so common; it’s not much of a competitive advantage any longer. Structuring your classes this way will get you not only members who want to come, but possibly media attention as well.

But there’s more to it than that. Many adults don’t want to face the fact that they don’t know everything there is to know about money and, even worse, may not be handling their finances in the best ways possible. By teaching them how to teach it to their kids, you’ve essentially taught it to them too.

There are lots of ways to do this. Offer parents a financial discussion question or topic every Friday (by e-mail or in the branch lobby or by social media). They can be encouraged to discuss it with their family. In fact, you can get a question like that e-mailed to you every week when you subscribe to CUcontent.com. Or, come up with your own topics families can discuss to put financial education on the table.

What have you accomplished? You have adults who are learning smart money management and not feeling stupid about it because they’re learning it so they can teach it to the next generation.

How smart is THAT?

Laura Enock is CEO of CUVA and publisher of www.CUcontent.com, a newsletter and Web site content service for credit unions.