Promoting Thrift in an Age of Excess

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+ guest52f0ec9 6 months ago
Thanks for the Ignite shoutout.

Notes on slide 1

I feel guilty belaboring this point, but these stats are startling. Bankruptcies in the United States rose 350% from 1980-2005.

We’re house poor. Seven and a half million Americans spend at least half of their income on housing costs.

Ten million Americans owe more on their mortgages than their homes are worth...and this number is rapidly rising.

As income has risen exponentially, savings have remained quite flat over the past 55 years.

So if that’s our mission, how are we doing? One way to evaluate this is by looking at national savings figures. This graph shows total personal savings in the United States since 1952. Even though these figures are not adjusted for inflation, personal savings in 2005 were roughly equal to savings in 1961. This, despite the fact that the effective tax rate for the median wage earner was actually lower in 2005 than it was in 1961. Amazingly, the top marginal federal tax rate in 1961 was 91% - in 2007 it was 35%.

Given that definition, it’s rather safe to say that Americans simply aren’t being very thrifty. At a minimum, we can claim that more thrift is needed. We are saving less and less of our disposable income. Take a look at last year, all but six tenths of one percent of Americans’ disposable income went toward taxes and personal outlays or spending. That’s barely 1/20 the savings rate of only 15 years previous.

The average four-year private education now costs over $30,000 annually, and continues to rise. Just ask Ron Shevlin. So, not only are we saving less - we’re spending more on the thing

I feel guilty belaboring this point, but these stats are startling. Bankruptcies in the United States rose 350% from 1980-2005.

Gen Xers have little faith in their financial futures. 31% believe they will never be able to stop working, and 21% have no retirement savings whatsoever.

Baby Boomers are pessimistic too. Only 64% feel like they can enjoy a financially worry-free retirement.

If someone were to ask you to sit down and write a mission statement for credit unions, chances are the word “thrift” would find itself on the document. The Federal Credit Union Act says specifically that credit unions are organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes.

But what is thrift? Why is it important? What does promoting thrift look like? And how can credit unions create a competitive advantage with this mission?

In 1965, CUNA even claimed that promoting thrift is the most important purpose of the movement. I agree...at least I’ve always thought I did. Until I realized how confusing and how poorly defined this word has been. Even those of us deeply seated in credit unions have differing views of what this word means. And our writings haven’t helped.

Friedrich Raiffesein sought to promote mutual self help and affordable credit to German farmers who, in the rare case that they were not completely denied credit, were subject to usurious lending practices. Thrift, to him, was essentially a synonym for savings.

Alphonse Desjardins saw the credit union’s mission as providing affordable credit to the rural, working poor, and encouraging regular, systematic savings so if tragedy struck their family - sickness, death, workplace injury - they would have something to fall back on.

Edward Filene believed in the merits of free enterprise, and spent his career innovating in the world of retail and fighting for workers’ rights such as minimum wage laws and workmen’s compensation. He believed in the free market’s ability to continuously improve the standards of living for American workers, but knew that the usurious rates and misguidance by traditional banks made this impossible for the typical American. He believed that the only way to improve workers lives was by encouraging them to be better workers and better consumers. He saw cheaper access to credit and wiser consumerism as the keys to this prosperity, and believed financial cooperatives were part of the answer.

Save, save, save, and borrow only in case of emergency was the philosophy of Desjardins. Produce, earn, buy, and borrow so you can purchase more and encourage further advancement of capitalism was Filene’s philosophy. In his opinion, saving just to save or investing just to invest was not productive and lessened the overall strength of the American economy.

You see, until around 1920, credit served consumers mostly as something to fall back on when times were hard. After 1920, it served more as a way to increase consumer purchasing power.

The best definition for thrift I have found is from the American Heritage Dictionary. It defines thrift as simply the wise management of money and other resources, or frugality. This is quite different than some industry writings that use “thrift” and “savings” synonymously. But if you read the writings of Filene and Desjardins, you will realize that thrift is much more than regular savings deposits.

The average four-year private education now costs over $30,000 annually, and continues to rise. Just ask Ron Shevlin. So, not only are we saving less - we’re spending more on the thing

Promoting thrift is exactly what Duke Federal Credit Union is doing with their Financial Education Center. They didn’t just talk about member financial education...they built a library dedicated to it.

We should be doing the same. Just saying we are here to help is quite different than dedicating real estate and staff to the mission in a conspicuous way.

Encourage your members to look at their accounts and spending patterns in a more comprehensive way with powerful account aggregators (PFMs) sites like Mint, Wesabe, and Jwaala. The best way for members to display wise economy in the management of money is to give them more user-friendly ways of understanding their account information and spending patterns...and a way to share savings tips with their peers.

That’s promoting thrift.

The average four-year private education now costs over $30,000 annually, and continues to rise. Just ask Ron Shevlin. So, not only are we saving less - we’re spending more on the thing

The IRS, you can see, doesn’t think that the sale of insurance products constitutes “promoting thrift”. Let’s be frank. I have never been a big fan of credit unions’ foray into the world of insurance. And I have always thought of these offerings as being outside the scope of our movement’s mission. But after closer examination of the founding fathers of the modern credit union, in particular Alphonse Desjardins and Edward Filene, I think have changed my mind.

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Promoting Thrift in an Age of Excess - Presentation Transcript

Promoting Thrift in an Age of Excess Matt Davis Members Credit Union
An Age of Excess
An Age of Excess
An Age of Excess
An Age of Excess - The Sequel
An Age of Excess - The Sequel
An Age of Excess - The Sequel
An Age of Excess - The Sequel
Keeping Up with The Joneses
An Age of Excess - The Sequel *NPR “Behind the Ever-Expanding American Dream House,” Margot Adler
7,500,000 Spend At least Half Their Income on Housing. *U.S. Census Bureau 2007
24,000,000 Owe more on their mortgages than their homes are worth. *Zillow.com
Disposable personal income (DPI) Personal Savings Taxes + Outlays 1952 2007 *BUREAU OF ECONOMIC ANALYSIS
Personal Income - Taxes - Outlays ___________________ NIPA Personal Savings 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 $32.2 Billion vs. $32.5 Billion *BUREAU OF ECONOMIC ANALYSIS 1961 Savings vs. 2005 Savings
2005 *BUREAU OF ECONOMIC ANALYSIS
11.2% Personal Savings ___________________ Disposable Income 0.4% 1982 2005 *BUREAU OF ECONOMIC ANALYSIS
Eleven Consecutive years college costs have outpaced inﬂation. *College Board 2006
350% Per Capita Increase in personal bankruptcies from 1980-2005. *Administrative Ofﬁce of the U.S. Courts: www.uscourts.gov/adminoff.htmlsting
35% Gen Xers Believe they will never be able to stop working. *Scotttrade/Betterinvesting
64% Baby Boomers Feel like they can retire and not worry. *Scotttrade/Betterinvesting
A Credit Union is “Organized...for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes;” - Federal Credit Union Act §1752 (1)
The credit union’s “most important purpose is to teach and promote thrift.” - J. Orrin Shipe, CUNA June 7, 1965 Issue of U.S. Investor
“The society aims less at obtaining business proﬁts than the strengthening of the economically weak and the furtherance of the intellectual and moral well-being of its members.” - Friedrich Raiffesein
- Alphonse Desjardins
“I’ve been plunged into different things. It reminded me of my father’s ill-health, and what can happen to a family when the breadwinner is struck.” - Alphonse Desjardins
“...if the masses of wage earners gamble in stocks instead of buying the things which they want, they gamble not merely with their savings but with their jobs.” - Edward Filene
thrift (thrĭft) n. 1. Wise economy in the management of money and other resources; frugality. *The American Heritage Dictionary of the English Language, 3rd Edition
How Should Credit Unions Promote Thrift?
1. Teach Members How to Save
Teach Members How to Save
Teach Members How to Save
SWEET! Sweet!
SWEET! Sweet!
2. Make Saving Easy
Make Saving Easy
Make Saving Easy
3. Make Saving Fun
Make Saving Fun
4. Save Members Money on Expenses
4. Save Members Money on Expenses
Key Takeaways • Strike while the iron is hot • If you’re not having fun, your members aren’t either • Take Advantage of Cheap Technology • Make your members the stars • Goal should be improving member behavior
Matt Davis Director of Public Relations Members Credit Union Thank You! mattd@memcu.com creditunionwarrior.blogspot.com