When the U.S. Department of Commerce announced a third-quarter 3.5% growth the U.S. gross domestic product in October, economic experts fairly crowed with renewed – and no longer cautious – optimism.

Even the normally reticent Federal Reserve, bolstered by economic growth, ended its quantitative easing program in October, ceasing its efforts to buy back bonds as a way to stimulate an economy its officers clearly believe to be on the mend. Compared to the economies of other developed countries, in fact, Uncle Sam has once again emerged as leader of the pack.

But trouble still exists in a seemingly economically vibrant paradise. As Fed Chair Janet Yellen noted in early October that when it comes to economic growth, not all U.S. consumers have healed at the same rate and to the same degree, and many clearly have struggled. The growing inequity signals both an opportunity and an obligation for the nation's credit unions.

“The extent of and continuing increase in inequality in the United States greatly concern me,” Yellen told attendees Oct. 17 at the Federal Reserve Bank of Boston's Conference on Economic Opportunity and Inequality.

“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” Yellen said. “I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them, the high value Americans have traditionally placed on equality of opportunity.”

Historical values notwithstanding, the larger question may be what the widening U.S. wealth gap will mean to average consumers' financial wellbeing, as well as the country's sustained ability to continue competing in the global marketplace.

Credit unions and their members are not immune to the trend's economic and social fallout. But in some ways their role in serving primarily middle-class and low-income people puts them on the right side of the gap in terms of their social mission and potential to prosper.

“Credit unions have never had the facility for serving the growing number of billionaires,” William Myers, director of NCUA's Office of Small Credit Union Initiatives and former president of the $90 million Alternatives Federal Credit Union, a community development cooperative based in Ithaca, N.Y., said. “The wealthy 1% are not credit union members, but it's the other side of the market that's exciting for us.”

The opportunity to serve a growing number of people puts credit unions in a pivotal position not only now but as that gap continues to widen, Myers said. It's a chance for credit unions to live their philosophical underpinnings as they may not have anticipated.

“We should be concerned about the weakness of the economy and wealth disparity, but as businesses this is a nice opportunity to help people,” Myers said. “When you move into this market, the net benefit to members skyrockets, and for credit unions who feel their social mission closely, this is a great place to be.”

The wealth gap has always existed, some economists assert, but the recession of 2008 helped escalate the gap's spread in ways and to population segments that had been relatively unaffected. Moreover, the gap's widening spread has helped expose a basic inequity in the way the U.S. economy has evolved in recent times, according Michael E. Porter with the Harvard Business School.

In his research study, An Economy Doing Half Its Job, released in September, Porter and co-author Jan W. Rivkin, examined U.S business competitiveness and the stumbling blocks to its continued success. While the authors focused on key areas that included failure of the country's K-12 educational system, a decline in workplace skills and morale, and crumbling transportation infrastructure and the confusing policies that govern it, Porter and Rivkin surfaced a critical social failure in the myopic way U.S. business leaders view success.

“Our sense that the American economy is doing only half its job is amplified by the recent business cycle, with its jobless, low-wage recovery,” the authors wrote, citing the lack of meaningful employment and well-compensated workers.

Business recovery that benefits corporate entities without correspondingly benefiting the employees whose efforts have helped fuel that recovery are overlooking an aspect that is both critically and economically important, the researchers wrote.

Porter and Rivkin noted that a “recent divergence of outcomes, with firms (especially larger firms) thriving and workers struggling, is unusual in the United States.”

Its impact, they said, may have unprecedented and not entirely positive results.

Read more: Not the usual U.S. recovery …

Historically speaking, the researchers noted, American companies and citizens have either thrived together, as in the post-World War II economic boom, or suffered together, as they did during the Great Depression of the 1930s. This current recovery showed a marked departure for that pattern.

“Shortsighted executives may be satisfied with an American economy whose firms win in global markets without lifting U.S. living standards,” the researchers wrote. “But any leader with a long view understands that business has a profound stake in the prosperity of the average American.

“Thriving citizens become more productive employees, more willing consumers, and stronger supporters of pro-business policies. Struggling citizens are disgruntled at work, frugal at the cash register, and anti-business at the ballot box,” they continued. “We agree strongly with this view: Businesses cannot succeed for long while their communities languish.”

The isolationist approach that businesses have taken toward their own communities is driving the wealth gap, wrote Porter and Rivkin.

But there is a need for an even more precise understanding of the problem, according to Arthur Woolf, associate professor of economics at the University of Vermont and board member for the $1 billion New England Federal Credit Union in Williston, Vt.

“The wealth gap is hard to measure and has longer term consequences, because people accumulate wealth over time,” according to Woolf, who is also president of the Vermont Council on Economic Education. “Most people dealing with that issue in the real world are more concerned about the gap between rich and poor in terms of income.”

Woolf's observations, which echoed the Harvard Business School study, pointed to the continued decline in education and training as a primary factor, along with changes in the nature of compensation, including the increasing role that health care benefits and their rising costs play as part of most compensation packages.

If American business lacks competitiveness on the global stage, it's due in part to a workforce whose skills and educational edge has dulled over time, Woolf said. That's part of the problem, but often endemic to the solutions U.S. businesses have fostered.

“The ultimate issue is that there are a lot of people who lack the skills to get a good job,” Woolf said. “One hundred years ago, the U.S. was the world leader in education. Over the past 30 years those numbers have been stuck and the rest of the developed world now has equal to or more people with higher degrees. That's why there's a problem.”

Credit unions can play a role, not necessarily in providing job-training skills, but in supporting continued financial education of members. As the gap, whether defined as an income gap or wealth gap, continues its spread, credit unions' mission to serve members takes on greater meaning, Woolf said. What that mission means in practical terms is not as clear as it may have been in years past.

“This is all complicated and there are no easy solutions,” Woolf said. “The political sound bites and promises are not the solution to this problem, but education and greater skills development can be.”

But credit unions that want and need to play a role need to rely on more than a mission statement. Pro-active product development and outreach efforts to reach those that not only need credit union services but whose participation can help credit unions grow meaningfully and mind the gap in a positive way are necessary, according to Brian Turner, owner of and chief economic strategist for Median Alliance LLC, a credit union consulting firm based in Plano, Texas.

The gap seems to be most significantly felt by consumers 35 to 45 years old, Turner said. Because most members skew in a slightly older direction, credit unions have both a duty and an opportunity to attract younger members, particularly those defined as Millennials, to provide financial services and help grow the institutions.

“Yet, I question whether we, as an industry, are doing anything to reach out to this demographic,” Turner said, noting that Millennials number 45.8 million nationwide, exceeding in size and influence of baby boomers and Generation X.

“In fact, the data show that many Millennials don't even know what a credit union is and that knowledge of the products and services that credit unions offer is significantly lower than their knowledge of banks, thrifts or even insurance companies,” Turner added.

Demographic trends also indicate that Millennials stand to inherit trillions of dollars in the decade to come, making the pursuit of this group not only an appropriate and sound service strategy, but also a wise business decision.

Despite, or perhaps because of that, Turner has high hopes for the role credit unions can play now and in the future in helping bridge both the wealth and income gaps. Credit unions' philosophical mission will help drive their influence, he added.

The surveys also show that credit union members, across the board, have a much higher level of service satisfaction than do customers of alternative financial institutions, Turner said.

“The moral? Once we get members and have an opportunity to prove our dedication, they become extremely loyal, particular when the credit union displays an high measure of competence and professionalism,” he noted.

Instant Insights /

Economists: Mind the Wealth Gap

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