REAL Solutions for REAL Solutions for Low-Wealth Low-Wealth HouseholdsHouseholds
Colorado Credit UnionsColorado Credit Unions
Introductory ConferenceIntroductory Conference
REAL SolutionsREAL Solutions
REAL Solutions
Relevant
Effective
Asset-Building
Loyalty-Producing
Today’s Discussion
R.E.A.L. People! Defining Low-Wealth
R.E.A.L Facts! The Alternative Financial Sector
R.E.A.L. Stories! REAL Solutions in 26 States
R.E.A.L. Solutions in Colorado
State of the Movement
Stalled Growth
Membership and savings growth are just above population growth; 1.0% in 2007
60% of CUs have no growth at all
Declining numbers of CUs
Median CU membership age is 47; US population is 39
History of collaboration
R.E.A.L. People – Families with Modest Income
Households with modest incomeMedian US Household Income – $44,334Colorado Median Household Income $50,105Texas Median Family (4) Income $70,300
A good estimate of modest and low income - ModestModest income households earn 120% of the median income whileLowLow income households earn 50 to 80% of the median income.
They are largely underserved or unbankedThey are largely underserved or unbanked
2004 Census Data
Area Median Household Income - 2000
Area MHI $47,203 CO $41,994 US
Denver $39,500 .84 .94
Colorado Springs
$45,081 .96 1.07
Boulder $44,748 .95 1.07
Grand Junction
$33,152 .70 .79
Fort Collins $44,459 .94 1.06
Vail $56,680 1.20 1.35
U.S. Wealth Distribution - 2001
Defining Low Wealth
0%
20%40%
60%80%
100%
U.S. WealthDistribution
33% Net Worth
26% Net Worth
12% Net Worth
13% Net Worth
16% Net Worth
Defining Low Wealth
Income Quintile Median Wealth
Lowest Quintile $ 6,650
2nd Quintile $ 24,575
3rd Quintile $ 36,988
4th Quintile $ 61,366
Highest Quintile $142,937
Profile of Low Wealth Market
Low or Modest Income. . .Unbanked. . . . . . . . . . . . .No Credit/Credit Impaired.Immigrants. . . . . . . . . . . . .Minorities. . . . . . . . . . . . . . Young Adults. . . . . . . . . . .Unemployed. . . . . . . . . . . .Larger Families. . . . . . . . . .Higher Cost Services. . . . .
Low Wealth as Untapped
Low or Modest Income. . . High Income Density
Unbanked. . . . . . . . . . . . . Loyalties not Developed
No Credit/Credit Impaired. First or Second Chance
Immigrants. . . . . . . . . . . . . Remittances
Minorities. . . . . . . . . . . . . . Chance to Represent
Young Adults. . . . . . . . . . . Life Events
Unemployed. . . . . . . . . . . .Staffing Opportunities
Larger Families. . . . . . . . . .Multiple Relationships
Higher Cost Services. . . . . Difficult to Disappoint
Emerging Markets
What is the world’s most exciting, fastest-growth new market?
It’s where you’d least expect it: at the bottom of the pyramid.Collectively, low income people have immense entrepreneurial capabilities and buying power.The Fortune at the Bottom of the Pyramid by C.K. Prahalad
The Unbanked
Consumers without checking or savings
Estimated at 20 million HHs
Use check cashing stores and pay bills by money order or cash
Among U.S. born – 14% non-Hispanic Whites 34% Hispanics 46% African Americans
Among Mexican immigrants – 53%
The Cost of Being Unbanked - Opportunity
Check cashers
Charge $8 Billion annually
Payday loans
Charge $4.3 Billion in fees at APR’s of 400%+
Tax refund anticipation loans
Cost consumers $1 Billion in fees and interest
Remittances
Fees consumed 10-20% of the $20 Billion sent to family members
Check Cashers
$8 Billion
Payday Loans
$4.3 Billion
RAL’s
$1 Billion
Remittances
$3 Billion
$16 Billio
n A
nn
ual F
ees
No Credit/Credit Impaired
Economic struggles often the cause to overlook medical bills or to be late with a monthly payment
Some banks (CUs?) pre-qualify people for opening an account through ChexSystem or credit report
Are we forcing people to use AFS sector?
Why can’t we give them a first or second chance?
Minorities in Colorado - 2006
Race Percent U.S. %
White – not Hispanic
71.7 66.4
Asian 2.6 4.4
African American
4.1 12.8
Native American
1.1 1.0
Hispanic or Latino
19.7 14.8
Hispanic Median Age in Colorado is 26.7
Opportunity for 1st Time Homebuyers
Young Adults: Gen Y
Young Adults
18 – 24 year olds represent only 5% of credit union membership; 15% of US pop.
Generation Yers perceive no differences between banks and credit unionsLikely to use the internet to research financial products --But often rely on family and friends for advice and recommendations
Think life events (and needs)
TransactionsFirst jobFirst carMove away from homeCollegeFirst credit needStart careerRent an apartmentMarriage? Kids?Buy first homeInvesting
REAL Solutions Tested Business Models
Families with Modest IncomesPayday Lending ProductsCheck Cashing
Immigrants/New AmericansSafe AccountsRemittances
Young AdultsFirst Time MortgagesYouth Credit Union Branches
Unbanked and UnderbankedFree Tax PreparationStarter Accounts
A National View
Serving low-wealth households is an increasing opportunity that credit unions should not miss!
REACH OUT TO Serve LOW-WEALTH HOUSEHOLDS
A Credit Union Opportunity... Really?
R.E.A.L. Facts: Who is Serving This Market?
Check Cashers
Pawnbrokers
Payday Lenders
Title Lenders
Rent-to-Own
Finance Companies
Buy Here Pay Here Auto Dealers
Convenience Stores
Grocery Stores
Tax Preparation Offices
Banks (very limited)
Credit Unions (very limited)
Check Cashing Industry
2000 – 6,000 check cashing outlets
2005 – 13,000 outlets
180 million checks worth more than $55 billion are processed annually by industry
Avg. check value is $500 to $600
0
2000
4000
6000
8000
10000
12000
14000
2000 2005
Fees to Cash Checks
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
1987 1997 2006
Govt Chk
Pay Chk
Auto Title Loans
Median charge of 25%/mo or 300% APR + $25/loan
LTV about 50% of car’s value
Usually due in 30 days
Rent-to-Own
Weekly or monthly payment
Typically no down payment or credit check
Can return merchandise at any time without obligation
Or purchase usually over 12 to 24 months
R.E.A.L. Actions – For R.E.A.L. People
Strategy for Financial Success
LOW WEALTH FAMILIESLOW WEALTH FAMILIES
EDUCATION CREDITTRANSACTION
SERVICESSAVINGS
PRODUCT AWARENESS
COUNSELINGSTAFF TRAINING
PAYDAY ALTERNATIVESMALL LOANS
USED CAR LOANS LOAN POLICIES
STAFF AWARENESS
LOW MEMBERSHIP FEESAVINGS AWARENESS
SAFE ACCOUNTSLONG TERM SAVINGS
CHECK CASHINGFEE FREE CHECKING
MONEY ORDERSREMITTANCES
TAX PREPARATION
Filene Research InstituteState Leagues
Credit Union National Association
CREDIT UNIONCREDIT UNION
HOME OWNERSHIP
HLPR LOANCOUNSELING
STAFF TRAININGCREDIT SCORE
Day-to-Day Day-to-Day LivingLiving
Bills
Overdrafts
Overdue
TRANSACTOR
Living paycheck to paycheck
Short financial time horizon
No savings – no assets
Informal Economy
Unbanked
Non-Depository Service Providers
Safe Harbor Products
Liquidity/Payment Services
Check Cashing
Bill Payment
Money Orders
Remittances
Stored Value Cards
Step Up Services
Fresh Start Accounts
Safe Accounts
Alternative to Payday Lending
Seeing the Vision
SAVER
Decision to Engage
Goal OrientationPay yourself first
Build assets
Expand financial horizon
Know that you can progress
ProductsSavings accounts, CDs, IRA
Financial educationStrong correlation between having a formal banking relationship and the accumulation of assets
Beginning Savings Products
Regular SavingsMember Advantage SavingsStep Up CD/Goal CDIndividual Development AccountsNo Excuses SavingsThe Savings ChallengeFresh Start CheckingSafe AccountPrize-based SavingsAuto SavingsEnvelope Savings
Double-Edged Sword
BORROWER
Build your credit score without borrowing your future
Productive CreditBuilds a platform for future borrowing
Increases income
Evens income inflows
Non Productive CreditState of financial crisis
Chronic borrower
Unpaid bills or debt
Payday Loan Products
Small Loans
Payday Alternative LoanShare Secured LoanCitizenship LoanQuincianeraFirst & Last RentRefinance Credit CardCredit Re-builderScore Builder2nd Chance VisaEmergency Loan
Low Score Used Car LoansRisk-Based LendingAlternative Credit ReportNon-Score Based LendingAlternative Student LoanYouth VISASmall Business Lending
Home Ownership
Investments
OWNER
Build Equity
Home Ownership
Business Ownership
Stock Ownership
Diversify Income Stream
Financial Education
Personal Investing
Estate Planning
Innovative Mortgages
HLPR Mortgage
Rescue Refi
Timely Payment Reward
No PMI Mortgage
Low Downpayment
ITIN Mortgage
First Time Homebuyer
Education K
eeps
the P
rocess
Moving
Financial Education
Product awareness
Staff Training
Counseling
Incentives for participation
Education without the right product menu Education without the right product menu has little chance of successhas little chance of success
R.E.A.L. Relationships! Low Wealth Households = Good CU Members
Lots of them!
Concentrate their business with their credit union
Have fewer good choices in the financial world
Loyal
Are borrowers and future borrowers
Good risks and manageable risks
Contact Information
Nancy Pierce
REAL Solutions Field Coach - NCUF
Tipton Research Group
816-532-4865