04.03.24

Empowering Customers: Why Banks and Credit Unions Should Prioritize Financial Literacy for Long-Term Success

by: David L. Zimmerman, MSc, CPC

Financial literacy plays a crucial role in the lives of individuals, enabling them to make informed decisions about their finances and achieve long-term financial success. As banks and credit unions, it is your responsibility to empower your customers by prioritizing financial literacy. By equipping them with the necessary knowledge and skills, you not only benefit your customers but also foster a stronger and more resilient financial system.

The Importance of Financial Literacy for Customers

Financial literacy is the foundation for making sound financial decisions. It empowers individuals to manage their money effectively, understand financial products and services and navigate complex financial situations. Without financial literacy, customers may fall victim to predatory lending, make poor investment choices or struggle with debt management. By prioritizing financial literacy, financial institutions can help customers build a strong financial foundation, leading to financial independence and security.

Moreover, financial literacy enhances customers' confidence in their financial decision-making abilities.  When customers are knowledgeable about personal finance, they feel more in control of their financial future. This confidence translates into better financial habits, such as budgeting, saving and investing. Ultimately, empowered customers contribute to a healthier and more stable economy.

Benefits of Prioritizing Financial Literacy for Banks and Credit Unions

Prioritizing financial literacy brings numerous benefits to banks and credit unions — the first being customer loyalty and trust. When customers see that their financial institution is genuinely invested in their financial well-being, they are more likely to remain loyal and recommend the institution to others. Building strong customer relationships through financial literacy initiatives can lead to long-term success and a positive brand image.

Next, prioritizing financial literacy reduces the risk of financial fraud and default. Educated customers are less likely to fall victim to scams or make unwise financial decisions that could lead to defaulting on loans or credit card payments. By promoting financial literacy, financial institutions can help customers avoid financial pitfalls and protect themselves from financial exploitation.

Finally, prioritizing financial literacy aligns with regulatory expectations and social responsibility.  Governments and regulatory bodies increasingly emphasize the importance of financial education. By proactively addressing this expectation, banks and credit unions demonstrate their commitment to responsible banking practices and contribute to the overall well-being of the communities they serve.

Financial Literacy Statistics

To underscore the importance of financial literacy and its impact on individuals and the economy, let's consider some compelling statistics and insights. A significant portion of the global population lacks this essential knowledge, leading to financial vulnerability and inequality.  A comprehensive survey conducted by the Standard & Poor's Ratings Services Global Financial Literacy Survey revealed that only 33% of adults worldwide are financially literate. This survey, which is the world's largest and most comprehensive global measurement of financial literacy, probes knowledge of four basic financial concepts: risk diversification, inflation, numeracy and interest compounding. It is based on interviews with more than 150,000 adults in over 140 countries, highlighting the widespread need for improved financial education and awareness.

In the United States, the situation is similarly concerning. According to the Federal Reserve's Report on the Economic Well-Being of U.S. Households in 2019, nearly 40% of American adults would struggle to come up with $400 for an unexpected expense. This statistic underscores the precarious financial situation many individuals face, emphasizing the need for enhanced financial literacy to foster financial resilience and security.

The lack of financial literacy is particularly pronounced among marginalized communities, where lower income and limited education often compound the challenges of managing finances effectively. Developed by the TIAA Institute and Global Financial Literacy Excellence Center (GFLEC), the Personal Finance Index (P-Fin Index) highlights that financial literacy rates vary significantly across demographic groups, with disparities evident in terms of income, education and race/ethnicity. These findings suggest targeted efforts to improve financial literacy among these groups could play a critical role in promoting financial inclusion and narrowing the wealth gap.

Strategies for Promoting Financial Literacy

Let's explore some strategies banks and credit unions can adopt to promote financial literacy among their customers.

1. Educational Workshops and Webinars: Organize workshops and webinars on various financial topics, such as budgeting, saving for retirement or understanding credit scores. Invite experts to share their knowledge and provide practical tips for financial success.

2. Personalized Financial Coaching: Offer one-on-one financial coaching sessions to customers who may need more personalized guidance. These sessions can help customers set financial goals, create budgets and develop strategies for debt management.
3. Online Financial Education Platforms: Develop user-friendly online platforms that provide educational resources, interactive tools and quizzes to engage customers and enhance their financial knowledge at their own pace.
4. Partnerships with Schools and Universities: Collaborate with educational institutions to incorporate financial literacy into the curriculum. By reaching students at an early age, banks and credit unions can lay the foundation for a financially literate future generation.

Incorporating Financial Education Into Banking Services

One effective way to promote financial literacy is by incorporating financial education into banking services. Banks and credit unions can provide educational materials and resources alongside their products and services. For example, when customers open a new account, they can receive a welcome package that includes a guidebook on financial planning and saving.   Similarly, credit card statements can include tips on responsible credit card usage and debt repayment strategies. By integrating financial education into everyday banking interactions, financial institutions can create an ongoing learning experience for their customers.

Collaborating With Community Organizations for Financial Literacy Initiatives

To maximize the impact of financial literacy initiatives, banks and credit unions can collaborate with community organizations. Non-profit organizations, local governments and educational institutions often have existing programs and resources dedicated to financial education. By partnering with these organizations, financial institutions can leverage their expertise and reach a wider audience. Joint initiatives such as community workshops, financial literacy fairs or school-based programs can create a collective effort to improve financial literacy within the community.

Tools and Resources for Improving Financial Literacy

Various tools and resources are available to help individuals improve their financial literacy.

1. Online Budgeting Apps: Recommend user-friendly budgeting apps that help customers track their expenses, set savings goals and manage their finances effectively.

2. Educational Videos and Podcasts: Curate a collection of informative videos and podcasts covering a wide range of financial topics. Customers can access these resources through the bank or credit union's website or mobile app.

3. Financial Calculators: Offer online calculators that help customers understand the impact of interest rates, loan terms or investment returns on their financial goals.  These calculators can provide valuable insights for informed decision-making.

Measuring the Impact of Financial Literacy Initiatives

To ensure the effectiveness of financial literacy initiatives, banks and credit unions should measure their impact. Here are some key metrics to consider:

1. Participation Rates: Track the number of customers participating in financial literacy workshops, webinars or coaching sessions.

2. Knowledge Gain: Assess the knowledge gain among participants by conducting pre- and post-workshop surveys or quizzes.

3. Behavioral Changes: Monitor customers' financial behavior after participating in financial literacy initiatives. Are they saving more, reducing debt or making better investment choices?

Conclusion

Prioritizing financial literacy is not only a responsibility but also an opportunity for banks and credit unions. By empowering your customers with the knowledge and skills to make informed financial decisions, you contribute to their long-term financial success and well-being.  Moreover, prioritizing financial literacy brings numerous benefits to banks and credit unions, including customer loyalty, risk reduction and social responsibility. Through strategic initiatives, collaboration with community organizations and the provision of tools and resources, financial institutions can make a significant impact on improving financial literacy.

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David L. Zimmerman is the co-founder of Adaptus Group LLC, with his partner and co-founder Scott Stathis. Adaptus was launched mid-2023 to create new and innovative ways of providing consulting, leadership coaching and training to the financial services industry. One of the first offerings from Adaptus Group, The Leadership Academy, is already taking the industry by storm.  

In 2022, after four decades in the wealth management industry — where his last two positions were president of wealth management, Atlantic Union Bank and president and CEO, First Citizens Investor Services — Zimmerman launched AMAXXA LLC. AMAXXA, is a term from ancient Greece meaning “coach.” Through AMAXXA, Zimmerman provides high-level consulting and strategic advice from his experience in the financial services industry. He is uniquely qualified to merge executive and leadership coaching into the process — an approach that sets his work apart. 

In addition to his master’s degree in leadership and coaching, Zimmerman is a Certified Professional Coach (CPC) and a Certified Adaptability Coach, which in today’s constant unpredictable changing environment brings another specialized focus when working with leaders on how individuals are adapting to volatility, uncertainty, complexity and ambiguity (VUCA).