Serving Modest Means
New research conducted for the National Federation of Community Development Credit Unions suggests that serving populations of very low-income people may be less risky and complicated that many suppose, but also can be more expensive.
Kirsten Moy, director of scale initiatives for the Aspen Institute in Washington, D.C., and Joy Silha of Silha Communications in Santa Fe, N.M., conducted the research which they stressed was qualitative, not quantitative, in nature.
The goal was not to conduct a sweeping study that delivered population-wide conclusions, Silha said in an interview with CU Times at the federation's 2014 annual meeting in Detroit last week.
“What we wanted to do was conduct in-depth interviews with people who have very low incomes so we could help understand their financial needs and obstacles to serving them,” she said.
Moy and Steven Zuckerman, president of the $560 million Self-Help Federal Credit Union, the Oakland Calif. affiliate of Self-Help Credit Union in Durham, N.C., presented the research at the Detroit gathering.
Researchers, primarily Silha, met for about one hour each with very low-income people at four sites around the country: three credit unions and one strip-mall based check casher. Participants were promised confidentiality and researchers defined very low income as half the federal poverty level income for that area.
The sites were Self-Help FCU's Prospera-branded affiliate in East San Jose, Calif.; the $135 million Guadalupe Credit Union in Santa Fe; Community Check Cashing in Oakland, Calif.; and the $245 million St. Louis Community Credit Union in St. Louis.
Moy said much of the research illustrated what researchers had supposed they would find. People living lives with very low incomes are extremely vulnerable to economic disruption; their lives often contain lots of stress that makes them challenging prospects for service providers even as they need them more.
But she also observed that employment had become steadily less stable over the past few years.
“We knew that low-income people were working in very low-paying jobs,” the Aspen Institute staffer said, “but what has changed is that those jobs have become less stable, less reliable, less steady. We frequently found that many of our interview subjects worked two or three jobs and that those jobs could change or end without notice.”
Silha added, “We also found that meant very low-income people don't have the same sorts of financial horizons as many suppose. One reason payday lending is as popular as it can be with this population is that two weeks is a time horizon they feel comfortable with,” she said. “Large savings goals over a longer time felt more difficult and unlikely because they didn't believe they have financial stability over that long a time period.”
The good news for credit unions which might consider reaching out to very-low income people is that products which could really help them tend not to be complicated or risky.
“What we came to realize is that we couldn't introduce products or services that required changing behavior in big ways,” Zuckerman said, “because big changes in behavior are simply too much for people in very low-income circumstances. Our products needed to contain the behavior change as part of the product.”
For example, one of Prospera's most popular products is the Five For Me savings account, developed because the credit union realized that traditional share and savings accounts, which required more paperwork and separate transactions, were not being accepted by Prospera members.
Members can open Five For Me accounts with the same information they already have to give in order to cash checks. The account also allows members to simply make a deposit into the account as part of the check-cashing process.
Prospera tellers are trained to offer the Five for Me accounts and offer deposits by talking to members about what they might do with the money, not in terms of thousands of dollars but in terms of hundreds or fifty dollars, Zuckerman added. He said members often do save significant amounts of money through the accounts, but their horizons when they first start out need to be small to be manageable.
This means that Five For Me is a product which carries little risk for the credit union and is simple by definition, the Self-Help FCU and the researchers observed, but it could also carry higher costs than other member service channels.
“Trust is a such a huge, almost visceral, issue with so many of these people,” Silha observed. “We were struck by how many of the interview subjects wouldn't say, ‘Oh, I went to the credit union and they said.’ Or ‘I went to Prospera and they said.’ Instead they would identify with the person at the credit union, the teller, who had been helping them. ‘Diana told me to,’ or ‘John advised me to’ and that was what was most important,” Zukerman said.
This would appear to put working with very low-income people squarely in opposition to the overall trend in financial services, which is to move away from the personal and more expensive and more toward the technical and less expensive.
But Silha noted that many even very low-income people had mobile phones and Zuckerman considered that the use of technology in financial service delivery could be introduced to them, provided it was done in a personal way by people they trust.