Real Teaching Moments With Our Members

The old gentleman’s eyes looked away as he sat at my dinner table and told me this story from his youth back in the 1930’s. It was going to be a perfect day. His class was going down to the lake for a class outing and picnic. Each student was to bring a sack lunch for the day. 

The boy was the son of a farmer and times were very lean in 1930’s for rural farmers. The boy gave his mother a week’s notice that he would need to take his lunch. On the day of the outing his mother handed him a sack lunch with a tomato biscuit, a country ham biscuit, and a biscuit with homemade butter and jam on it.  The boy excited about the day, kissed his mother and left for school.

The ride to the lake was enlightening for the boy as he heard everyone ask one another what they had brought for lunch. As the students headed toward the lake the boy held back and found an old stump with a hole in it. He quickly shoved his sack lunch down the stump hole and ran after his classmates.  When it was time for lunch he pretended not to hear the voice of his young teacher. She was new to the small country school and had come from the city.

The teacher called to him again and this time there was no ignoring the urgency or tone of her voice.  “Where is your lunch?” she asked when he joined the group with no lunch sack.  “I forgot it at home” he replied.  “Well then you can have my tomato sandwich” and with that statement she handed him her sandwich and then reached into her purse and pulled out a slightly crumpled sack. 

“I am going to have a biscuit” and with that she pulled out the country ham biscuit the boy’s mother had packed and started to eat it and commented to the children that she had never had a country ham biscuit before.  The boy stared at her with dismay.

The old man paused as he told the story and his voice caught for a moment. He explained then that he had been ashamed of the lunch his mother had packed as it was a poor farmer’s lunch.  That morning on the ride over to the lake he had heard that the other children were all having white bread sandwiches; which back in the 1930’s was a luxury.

The man’s eyes focused on me as he finished his story. He said, “After all these years I still remember her and how much pride I felt as she ate my mother’s biscuit." He then added, "She was a good teacher.” 

Now think of our members today. The average consumer is saddled with $6,493 in credit card debt and juggling an average of six open credit cards, according to credit health website Credit Karma’s latest data. That’s just our member’s debt on plastic. We have members who see others getting ahead but like the boy in the story stand back ashamed to speak up and ask for help. They see themselves struggling when everyone else is getting ahead. They see their homes, with a typical mortgage of around $171,665, sliding underwater in equity. They wonder how they ended up with the typical auto loan of $15,152, plus another $29,572 in student loans on an education that has not delivered all that had been promised. That’s a  grand total average of $222,800 for the average consumer.

For many credit union members the recession played fast and furious on their household finances, and left many families struggling paycheck to paycheck.  Paying a car, home, or college education in cash has become impossible for most. For many, putting the grocery bills on a credit card is the “new normal “that happens each month in order to pay the mortgage or the rent.

Each month of the “new normal” blinds the member to the dangers ahead of them. So what are the red flags we need to educate our members about to help them see the spiral of relying too heavily on credit?

As the financial experts we need to be aware of these three road signs and do our part to educate our members.  I would hope that every credit union leader reading this blog offers some type of free CBR review for their membership. If nothing else each of you should post these warning signs to your brand new Facebook page. Remember that new social media blog you have started but were not sure how to make it actionable? Well, my suggestion would be to post this on that blog and then add a line about calling the credit union to get a free consultation to look over your credit bureau.  So without further fanfare here are the teaching points we should all be educating our membership on. These points have been written so you can publish them straight to your membership

Credit Warning Signs To Post To Your Members

You’re Only Paying the Minimum. 

If you’re paying the minimum on your debts, two things could be happening: you’re using more cash toward expendable monthly purchases, or you can only afford to pay the minimum. In both cases, you aren’t prioritizing paying off your debts. Paying only the minimum might mean you’re making affordable payments month-to-month, but you could end up paying hundreds or even thousands of dollars in interest over time—you’re essentially paying the bank to maintain your debts. Reset your budget to pay more towards the minimum payments.

You’re Turning to Plastic to Pay What You Can’t Afford.

How often have you realized you’re low on cash or emptied your checking, and needed to use your credit card instead? True, one of the uses of a credit card is that it allows you to buy things you couldn’t otherwise afford. But on the flip side, should you be financing something you can’t pay for right now? Your debts accrue interest and make it even more unaffordable over time. Putting a $600 purchase on an 18% APR credit card and paying just the minimum results in $300 in interest charges over the life of the debt—that’s a 50% increase from the original debt! Your credit card is best used to pay things you can afford to pay in full every month; that’s the credit-building action that boosts your credit score and steers clear of debt.

Your Credit Score is Falling.

Relying heavily on credit isn’t just costing you money; it compromises your financial future. When lenders take a look at how much debt you are carrying and how much credit you use, it’s a sign of risk that you may mismanage or default on the credit they extend you. Plus, with debt and credit use factoring into about 30% of your credit score, a decreasing credit score is the first sign that you are in over your head. If you don’t know where you stand with your credit health, start with checking your credit score regularly for free at Credit Karma and monitor for any drops in your score. Contact your credit union and ask them to go over your credit with you.

Practical Application

Looking to add loans to your bottom line? Start a promotion educating members on the nature of credit. Offer tools like Credit Karma for online members. You should also offer a free credit review to every new membership you open. Go over the CBR with them and talk about the impact of slow pay or other items you find in the trade lines. Look for outside debt and look to refinance that debt saving the member even more money.

Some of our members are confused and ashamed of what they simply do not understand. Rather than bury those questions and ignore the problems we need to help our members by creating real teaching moments and showing them how they can move forward.   

Visit CreditKarma to learn more about online credit monitoring solutions you can offer your membership