WASHINGTON – As personal savings continues its descent, creditunions are increasingly finding themselves with less money to lend.As a culture, personal savings has changed in size and shape.“Credit unions are certainly feeling the pinch themselves withsavings at 3.4% year-over-year growth,” CUNA Mutual Chief EconomistDave Colby said. By not increasing their share yields, creditunions are protecting their return on assets, which has hoveredbelow 1% in recent years, he explained. “You certainly can't blamethem.” “My big concern is that credit unions will see a netoutflow. I had hoped consumers would become more conservative,”Colby added. That has not happened thus far, he observed. Withcredit union regular shares paying “next to nothing,” Colby said,what could be dangerous is if people with home equity loans beginusing those shares to pay the loan off. Asset-Liability Managementis crucial here, he emphasized. According to a recentcreditunions.com article by Callahan & Associates ExecutiveVice President Jay Johnson, credit unions are beating out banksleft and right on loans but credit union share growth trails wellbehind. Johnson was not available for comment at press time.Savings in the consumer's mind is not what it used to be. Many aretaking funds that in the past would have gone into low-yieldsavings accounts and putting them into 401(k)s, money marketaccounts and other instruments that produce a better return on theinvestment, Colby explained. These are not included in recentsavings data that shows personal savings in the negative. Accordingto a report from the Bureau of Economic Analysis (BEA) of theDepartment of Commerce, disposable personal income minus personaloutlays was a negative $19.1 billion in November. This is evenfurther down from the $18.3 billion in October. Personal savings asa percentage of disposable income came to negative 0.2% in bothNovember and October even though personal income, disposablepersonal income and personal consumption were all up 0.3%, the BEAsaid. Things have become so tight, credit unions have begunborrowing from the Federal Home Loan Bank or their corporates tocontinue making loans. Bruce Beaudette, CEO of Sunmark FederalCredit Union, said his credit union has taken on non-memberdeposits to help fund more loans. The credit union is still 104%loaned out. Sunmark did a couple of things in 2005 to not only tryto reverse the personal savings trend, but also ease its liquiditysituation. The credit union offered three financial literacycourses directed toward the underserved “to promote thrift andsaving, very basic, for people who have not had a formalrelationship with a depository institution.” Additionally, on LaborDay, Sunmark launched a fully electronic product called RateEdge(www.rateedge.com) that offers 4.25% savings accounts with nominimum deposits or time requirements. These accounts can only beaccessed online, which saves the credit union money in order to beable to offer such a high rate. RateEdge is only being marketed fornew deposits and, since its launch has attracted 54 new accountsfor about $393,000 in deposits. The goal for 2006 is $6 million indeposits, according to Beaudette. “It's an interesting experimentto see if we can attract new deposits,” he commented. “Based on ourdeposits, we have a general idea of how much our members are savingand it's not very much,” Beaudette surmised. Sunmark's savingsgrowth was at 5.4% in the third quarter versus the 3.8% nationaltrend NCUA stated in its third quarter data (See related story onpage 4). “Consumers just keep spending, spending, spending,” CUNAMutual's Colby warned. “You can't stay in a dis-savings mode for anextended period of time.” He guessed that the savings mentality ofmid-century America will probably never return and the continuouslydropping savings rates will take some time to steady or reversecourse. All the debt will take a while to pay down, Colby said. Oneanomaly, he pointed out, is occurring down South where hurricanevictims have received the funds from their insurance claims but noone is around to build their homes so they are sitting on largedeposits that need to remain liquid. The ultimate impact on themacro level, on credit unions, and on consumers is impossible topredict. “From an economic standpoint, it depends on who you talkto,” Beaudette said. “I'm a saver, but we've created this cultureof being in debt and they don't know any other way.It has to be agood balance and we (as a society) don't have that right now.”Sunmark provides its employees with a defined benefit plan, ararity these days, as well as offering a 401(k) with 50% matchingup to 6% of income. As for his own employees, the CEO said he isconstantly surprised that many of the younger people do not takeadvantage of the “free money” from the 401(k) match. However,Beaudette said he is working hard to impress upon his 20-year-olddaughter the importance of saving for the future. “It's hard topredict 30 years down the road. From a savings perspective, itreally does not look good,” Beaudette concluded. -

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