REAL Solutions for LowWealth Households

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REAL Solutions for Low-Wealth Households

• Colorado Credit Unions
• Introductory Conference
• REAL Solutions

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REAL Solutions

• Relevant
• Effective
• Asset-Building
• Loyalty-Producing

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Todays 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

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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

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R.E.A.L. People Families with Modest Income

• Households with modest income
• Median US Household Income 44,334
• Colorado Median Household Income 50,105
• Texas Median Family (4) Income 70,300
• A good estimate of modest and low income -
• Modest income households earn 120 of the median
  income while
• Low income households earn 50 to 80 of the
  median income.
• They are largely underserved or unbanked
• 2004 Census Data

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Area Median Household Income - 2000
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U.S. Wealth Distribution - 2001
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Defining Low Wealth
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Defining Low Wealth
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Profile of Low Wealth Market

• Low or Modest Income. . .
• Unbanked. . . . . . . . . . . . .
• No Credit/Credit Impaired.
• Immigrants. . . . . . . . . . . . .
• Minorities. . . . . . . . . . . . . .
• Young Adults. . . . . . . . . . .
• Unemployed. . . . . . . . . . . .
• Larger Families. . . . . . . . . .
• Higher Cost Services. . . . .

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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

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Emerging Markets

• What is the worlds most exciting, fastest-growth
  new market?
• Its where youd 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

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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

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The Cost of Being Unbanked - Opportunity

• Check cashers
• Charge 8 Billion annually
• Payday loans
• Charge 4.3 Billion in fees at APRs 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

16 Billion Annual Fees
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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 cant we give them a first or second chance?

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Minorities in Colorado - 2006
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Hispanic Median Age in Colorado is 26.7
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Opportunity for 1st Time Homebuyers
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Young Adults Gen Y
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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 unions
• Likely to use the internet to research financial
  products --
• But often rely on family and friends for advice
  and recommendations

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Think life events (and needs)

• Transactions
• First job
• First car
• Move away from home
• College
• First credit need
• Start career
• Rent an apartment
• Marriage? Kids?
• Buy first home
• Investing

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REAL Solutions Tested Business Models

• Families with Modest Incomes
• Payday Lending Products
• Check Cashing
• Immigrants/New Americans
• Safe Accounts
• Remittances
• Young Adults
• First Time Mortgages
• Youth Credit Union Branches
• Unbanked and Underbanked
• Free Tax Preparation
• Starter Accounts

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R.E.A.L. Solutions

• Meets 3 core credit union needs
• 1. Good Business Decision
• Grow loyal membership
• 2. Philosophy
• Improve the quality of life for members and other
  users
• 3. Political Goodwill

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A National View

• Serving low-wealth households is an increasing
  opportunity that credit unions should not miss!
• REACH OUT TO Serve LOW-WEALTH HOUSEHOLDS

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A Credit Union Opportunity... Really?
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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)

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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

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Fees to Cash Checks
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Auto Title Loans

• Median charge of 25/mo or 300 APR 25/loan
• LTV about 50 of cars value
• Usually due in 30 days

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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

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R.E.A.L. Actions For R.E.A.L. People
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Transactor
Day-to-Day Living
Bills
Overdrafts
Overdue
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TRANSACTOR

• Living paycheck to paycheck
• Short financial time horizon
• No savings no assets
• Informal Economy
• Unbanked
• Non-Depository Service Providers

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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

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Saver
Seeing the Vision
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SAVER

• Decision to Engage
• Goal Orientation
• Pay yourself first
• Build assets
• Expand financial horizon
• Know that you can progress
• Products
• Savings accounts, CDs, IRA
• Financial education
• Strong correlation between having a formal
  banking relationship and the accumulation of
  assets

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Beginning Savings Products

• Regular Savings
• Member Advantage Savings
• Step Up CD/Goal CD
• Individual Development Accounts
• No Excuses Savings
• The Savings Challenge
• Fresh Start Checking
• Safe Account
• Prize-based Savings
• Auto Savings
• Envelope Savings

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Borrower
Double-Edged Sword
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BORROWER

• Build your credit score without borrowing your
  future
• Productive Credit
• Builds a platform for future borrowing
• Increases income
• Evens income inflows
• Non Productive Credit
• State of financial crisis
• Chronic borrower
• Unpaid bills or debt
• Payday Loan Products

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Small Loans

• Payday Alternative Loan
• Share Secured Loan
• Citizenship Loan
• Quincianera
• First Last Rent
• Refinance Credit Card
• Credit Re-builder
• Score Builder
• 2nd Chance Visa
• Emergency Loan

• Low Score Used Car Loans
• Risk-Based Lending
• Alternative Credit Report
• Non-Score Based Lending
• Alternative Student Loan
• Youth VISA
• Small Business Lending

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Wealth Building
Home Ownership
Investments
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OWNER

• Build Equity
• Home Ownership
• Business Ownership
• Stock Ownership
• Diversify Income Stream
• Financial Education
• Personal Investing
• Estate Planning

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Innovative Mortgages

• HLPR Mortgage
• Rescue Refi
• Timely Payment Reward
• No PMI Mortgage
• Low Downpayment
• ITIN Mortgage
• First Time Homebuyer

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Education
Education Keeps the Process Moving
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Financial Education

• Product awareness
• Staff Training
• Counseling
• Incentives for participation
• Education without the right product menu has
  little chance of success

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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

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Contact Information

• Nancy Pierce
• REAL Solutions Field Coach - NCUF
• Tipton Research Group
• piercen_at_kcnet.com
• 816-532-4865