I recently reported an interesting statistic out of Lake Bluff, Ill.-based economic research firm Moebs Services: 77% of U.S. consumers chose to allow for debit card and ATM overdrafts since the 2010 implementation of Regulation E.
I began to wonder what this statistic said about American consumers. Do we really view overdrafts as a safety net for those few times we need emergency funds and don’t have enough money in our accounts to cover them? Or are we so lazy that we’re failing to check our balances and leave adequate cushions in our accounts? Perhaps we’re nonchalant about paying for our mistakes, that we view another $30 penalty here and there as no big deal.
I’ve only overdrawn my account once. I was in college with a low checking account balance and paid about $60 to cover two transactions. I wasn’t happy about it and vowed never do it again.
Like all generations, Gen Y makes its fair share of mistakes, and an overdraft fee pales in comparison to the consequences of more serious actions, such as making a severe error at work or driving under the influence. But maybe Gen Y is accustomed to being rescued. The parents of many Gen Yers who make the same mistakes over and over again consistently bail their children out by offering money or housing. If a person always has a safety net waiting below, how does he or she become motivated to correct the mistake?
Overdrafts are, of course, a key component to a financial institution’s service offerings. According to the Moebs study, consumers have spoken loud and clear that they want overdrafts. Overdraft fees can also produce a valuable income stream. Especially in the face of new interchange cap regulations, squeezing out noninterest income wherever they can is high on many credit unions’ lists.
But in addition to providing overdraft protection, credit unions should help their Gen Y members avoid financial mistakes in the first place through education. For example, CUs can help members adopt good habits by allowing access to an online personal financial management tool.
PFM helps members understand where their money is going, how to come up with a budget and how much money they’ll need to put away to reach a financial goal. And if it’s integrated into the CU’s online system, the account information automatically populates into the PFM platform, giving members a central place where they can bank online and manage spending.
Mistakes are inevitable in life, and without a safety net in place, we’d all be in trouble. But the goal in making mistakes should be to learn from them, not repeat them. By offering educational resources and continuing to do what they do best–providing low interest rates and top-notch customer service that demonstrates a true sense of caring–CUs might help lead Gen Y on a path of good financial choices.
