How to break free from payday loan

Financial Education Reaches New Members From All Walks of Life

As both a credit union regulator and a parent, I believe financial education should begin in elementary school. Early knowledge about saving and spending is as important-and as easy to learn-as addition and subtraction.

Financial education should advance through middle and high schools. Many credit unions are providing valuable experiences for children of all ages, by creating kids' clubs that make learning fun, hiring student interns, and opening branches in schools.

But there is no final exam for financial literacy. As consumers, we never graduate. We must always keep learning. So credit unions must keep teaching-and not just children.

Each year, millions of young adults go to college or into the work force with little or no financial education. Their first experience with credit typically is an offer that's hard to resist. Some credit card vendors make applying for a $10,000 credit line as easy as filling out a sweepstakes entry-and just as attractive, with free gifts for signing up.

Whether in college or the work force, consumers who don't know better are taking on way more debt than they can afford.

More man one of five college students are burdened with credit card debt of $7,000. Amazingly, this equals the average credit card debt of nearly 60 million people in die work force. This revolving debt costs each of them more than $1,000 in interest and fees in a typical year.

The burden is even higher for workers with low incomes. Those who don't qualify for credit cards turn to payday loan stores, pawnshops, and odier predatory lenders that lure them into a cycle of debt and despair.

Given a tight job market for everyone from college graduates to low-income workers, this excess debt is more than diey will be able to pay off soon. It's no coincidence that personal bankruptcies have set records each year since 2001.

Lack of financial literacy could haunt many Americans for the rest of their lives. But it's not too late to teach them to make life-changing decisions and become smarter consumers.

Best practices

Some credit unions are offering world-class financial literacy programs to people of all ages and all income levels. Many of their success stories are available through the National Credit Union Administration's (NCUA) Farmering and Leadership Successes (PALS) Best Practices Web site (wunv.ncua.gov, click PALS, dien click Best Practices).

I launched PALS during my first year on the NCUA Board to help credit unions offer new services, reach new members, and share best practices across America. Today many PALS participants are teaching financial literacy not only in schools, but in different venues to reach adults from all walks of life-from rehabilitation centers and homeless shelters, to corporate offices and community centers.

For example:

* GHS Federal Credit Union is teaching financial literacy in a drag and alcohol rehab center in Binghamton, N.Y. While residents are committed to breaking their addictions and turning around their lives, credit union volunteers find it's the perfect place and time to help residents turn around their finances.

Before GHS arrived, recovering addicts used to struggle with depression as they realized how their disease hurt them financially. Now they are inspired with hope as they learn to repay their debts and get back on firm financial footing.

With help from GHS volunteers, recovering addicts are setting up automated payment plans with creditors and opening accounts at the credit union. As they clean up their credit histories, they are opening new doors of opportunity when they move out of the rehab center.

* Numerica Credit Union in Spokane, Wash., and Washington State Employees Credit Union in Olympia, Wash., are partnering to offer financial education to the homeless. It's part of their initiative to break the cycle of predatory lending and poverty among the "unbanked" in their communities.

Their program helps predatory lending victims reduce their dependence on uninsured financial institutions by learning to recognize high-rate, high-fee services that only lead them deeper into debt. The credit unions project about half the individuals and families counseled in this first year will become productive members.

* University Federal Credit Union in Austin, Texas, likewise finds that educated consumers become their best members. University Federal rents a community conference center to present comprehensive seminars on car buying, home buying, and college financing. Each seminar attracts as many as 400 consumers of all ages and income levels.

Although these seminars could be used to promote University Federal's auto loans, mortgages, and student loans, instead they emphasize the transactions before the loans-for example, how to negotiate the best deals on a car or house. Seminar graduates often become the best borrowers because they only seek loans they know they can afford-and they learn for diemselves that the credit union offers the best deals.

* Credit unions also are using financial education to reach new members in different languages. In particular, more are designing multicultural programs to teach Latinos and Asians, whose population in America is growing four times faster than all other ethnic groups.

Before branching into a large Latino community on Long Island, N.Y., Bethpage Federal Credit Union dedicated a bilingual "community development relationship manager" and two financial literacy counselors to present seminars in English and Spanish.

These credit union ambassadors help community groups teach undocumented Latinos to apply for taxpayer ID numbers, speak English, and earn American citizenship, so they can move beyond day laborer camps and gain stable employment in better-paying careers.

Providing this education has helped the credit union build trust in the Latino community. When their branch opened, residents brought in $7 million of deposits and took out $3 million of loans in six months.

Hiway Federal Credit Union in St. Paul, Minn., used a similar approach to reach a community of Cambodian immigrants known as Hmong. In every member contact department, Hiway Federal hired employees who could speak both Hmong dialects.

In their members' native languages, Hiway Federal offers seminars to help immigrants put down roots in their community. They're learning everything from avoiding identity theft, to buying a home, to investing for retirement.

Over the past 18 mondis, one out of every three new Hiway Federal members has come from diis community. They've brought in $17 million in deposits and $9 million in loans.

Results

Results like diese demonstrate that financial literacy programs benefit credit unions as well as members. In addition to increasing shares and loans, successful financial literacy programs diversify memberships by attracting new loyal members from all walks of life. This effectively spreads risks, giving each credit union a more solid financial base.

But die gains to members and potential members cannot be overstated. People with low incomes, especially, are likely to benefit. After receiving financial education:

* 85% reduce their budget

* 76% better manage credit card debt

* 74% increase savings.

Financial education is die passport to a secure financial future for people of all ages, all income levels, and all edinic backgrounds. I encourage all credit unions to offer financial literacy programs. You'll help prevent members from making cosdy mistakes throughout their lives, and help diem build wealdi so they become financially comfortable citizens who can afford to follow dieir dreams.

by Debbie Matz

NCUA board member

Debbie Matz, NCUA board member