Life saver Financial rescue

At Filene Research Institute, we’ve learned that digesting whitepapers on even the most important subjects can be difficult. In response, Filene has developed tools enabling credit unions to translate ideas into action, including the humble checklist. What makes a checklist so effective? In his book, “The Checklist Manifesto,” Atul Gawande frames the power of checklists around his experience as a surgeon, where checklists can (literally) save lives. Gawande writes that even competent experts need checklists for seemingly routine procedures.

I would argue that credit unions should be seen as the experts for solving their communities’ most pressing financial challenges. In line with Gawande’s recommendations, I propose that even credit unions could benefit from a checklist to instill action on one of the most pressing challenges of our day: Closing the financial access gap for households of color.

This checklist entails the following:

  • Define a significant community financial problem to solve.

Credit unions exist because underserved populations decided they needed a way to thrive financially. Yet today, data continues to show that households of color face significant barriers to access basic financial services to meet life’s necessities and accumulate wealth over time. Filene’s report, “Reaching Minority Households (RMH): Learning From Minority Credit Unions,” showed that the percentages of households reporting less than $10,000 in wealth are 55% among blacks, 52% among Hispanics, 30% among Asians and only 24% among whites. Also, 42.9% of Hispanic and 47.3% of African American households are unbanked or underbanked, compared to only 17.1% of white households, according to the FDIC National Survey of Unbanked and Underbanked Households.

This lack of basic financial access, combined with the lack of wealth to act as a financial cushion is untenable, unfair and will have profound negative repercussions for society and the broader economy if not resolved. Research also demonstrates links between financial and physical health. Some credit union members (disproportionately weighted to households of color) are living shorter and unhealthier lives due in part to their financial situation. Should credit unions unequivocally agree on the severity of this issue? A resounding YES; check that box!

  • Craft a business case in favor of solving the problem.

Credit unions, with limited time and resources, should develop focused business strategies that have a double bottom-line: For their organization and for members of their community. In Filene’s “RMH: Learning From Minority Credit Unions” report, U.S. households of color are shown to have an estimated total annual income of over $2 billion. That is about the size of major foreign economies like Italy and Canada (both about $2 billion). In a follow up study, “Reaching Minority Households Incubator,” Filene examined the performance of five products geared toward meeting the needs of households of color. Filene discovered that each product’s return on assets exceeded or met (ranging from 0.75% to 5.23%) the credit union system average of 0.75%.

Yes, serving households of color can accelerate the growth of both credit union and consumer bottom lines. Business case box checked!

  • Establish examples of success.

Credit unions effectively serving households of color is not theory; it is grounded in the cold hard facts of financial institutions of all asset sizes and geographies doing it every day. Look no further than the 40 testers in Filene’s RMH Incubator, the 300 CDFI credit unions, the 88 members of the Juntos Avanzamos program serving the Hispanic community, or the 150 credit union members of the African American Credit Union Coalition (just to name a few). These credit unions have led the way in serving financially vulnerable populations, met the specific needs of households of color, and generated a healthy return for their efforts. Filene’s research identified that Minority Credit Unions have roughly the same return on assets (around 0.70%) and asset growth rates (4.7%) as comparably sized credit unions.

Credit unions thinking about implementing targeted strategies to serve households of color need to know they are not starting from scratch. There are countless examples of credit unions that have built a mission and strategy to effectively serve households of color. When credit unions choose to stand for something as big as closing the racial financial access gap, it can be a powerful differentiator and directly lead to positive financial outcomes. Filene’s report “Who do Credit Unions Belong To?” reinforces this with financial performance data and concludes, “Credit unions may have the opportunity to do what few institutions can – vocally and credibly act as a unifier in communities across the U.S.” Ample examples of success? Check!

  • Formulate programs and tools that are ready to be deployed.

Equally, there is no shortage of product, program and service examples credit unions can deploy to better serve households of color. Filene’s Incubator has tested numerous programs to meet the needs of households of color, and through amazing partnerships, has built resource guides to give credit unions a blueprint to start their own programs. Credit unions can download the Individual Taxpayer Identification Number guide, two battle tested small-dollar lending alternatives in Borrow and Save and the Employer Sponsored Small Dollar Loan. Or, a guide on non-prime auto lending. Sometimes credit unions need help beyond a guide. Enter the collaborative efforts of Inclusiv, Coopera, Policy Works and Filene offering five free “Accelerating Financial Inclusion” Workshops across the nation.

Do credit unions have countless programs, tools and resources at their disposal to better serve households of color? Check that box.

  • Unleash the will to act.

In January 2019, in the midst of the recent federal government shutdown, waves of credit unions stepped up with innovative solutions to meet the needs of their members. CUNA President/CEO Jim Nussle stated, “During times of financial crisis, a credit union’s support of its members helps keep food on the table, gasoline in the car, children in daycare and families in homes. This government shutdown is no different.” While there were an estimated 380,000 furloughed workers and an additional 420,000 working with no pay during the recent shutdown, over 280 million in the U.S. live perpetually paycheck to paycheck, and millions of black and Hispanic households remain un- or underbanked. Shouldn’t credit unions’ response to this racial financial crisis also be no different?

Credit unions’ collective and decisive response to the government shutdown crisis was an incredible force. Credit unions have also responded without hesitation to natural disasters for decades, most recently with the California wildfires. These actions are a clear demonstration of what credit unions are capable of when they unleash the will to act, to throw the full force of credit union resources, knowledge and passion at the biggest issues facing their communities.

My final item for this checklist is this: Unleash YOUR credit union’s will to act.

The unmet needs and economic disparities we see with households of color is a crisis, one even greater than the government shutdown. It’s one that has persisted for decades, if not since the founding of this country. Credit unions are poised to stomp out financial inequities in their communities and secure their own financial future in doing so.

I leave it to your credit union to check that final box. To act decisively, consistently and creatively until the job is done.

Gawande’s Checklist Manifesto made sure to draw the line between a checklist and saving lives in the medical field. I want to draw that same line with credit unions empowering households of color to fervently pursue brighter financial futures. Credit unions should think no differently about the importance of this checklist; a checklist that can (literally) transform financial lives.

Adam Lee

Adam Lee is Incubation Director for Filene Research Institute. He can be reached at 608-661-3747 or adaml@filene.org.