National Credit Union Youth Week
April 20-26, 2008
2008 SAVINGTEEN • CUNA CENTER FOR PERSONAL FINANCE
Do young members help or hurtyour bottom line? Conventional wis-dom says that young members costcredit unions money, but conventionalwisdom doesn’t always know what it’stalking about. The following statementsare all true:
In the short run,
membersunder age 18 are an expense tothe credit union
members nowunder age 18 will add more inrevenue than they subtract inexpense.
members nowunder age 18 will contribute agreater net revenue than theirage-mates who didn’t join untilafter age 18.
Nobody knows quite why C istrue.Few credit unions have challengedconventional wisdom on the supposed“unprofitability” of youth accounts.Even the most ardent youth advocatesacknowledge that they believe youthaccounts generate more expense thanrevenue. What motivates them is theoverriding belief that the benefits of raising financially literate youth justifyprogram costs. They’re convinced thatyoung members eventually become“profitable.” And they count on “con-sumer inertia” to keep young membersfrom switching financial institutionslater.But what if a credit union didn’t
to lose money on its young mem-bers? Then no credit union wouldhave an excuse not to have a robustyouth program. Here’s a statistical lookat the conventional wisdom of youth’s“unprofitability:”
The 2007 edition of
in-troduced the concept of Marginal NetRevenue Contribution per Member(MNRC/M). MNRC/M equals total loaninterest paid
total fees paid
total interest and dividends earned (allper member).Some credit unions, such as the $1-billion University of Wisconsin CU(UWCU) in Madison, use theMNRC/M in strategic planning. UWCUmanagement and board consider theMNRC/M as a measure of the averagemember’s effect on the credit union’sbalance sheet. Groups of memberswith a negative MNRC/M (the savers)provide funds for growth, while theMNRC/M for the entire membershipindicates the degree to which UWCUborrowers add to accumulated earn-ings. At UWCU, the overall MNRC/Mis the annual gauge of the cooperative’shealth, which directly benefits all of itsmembers. Although the MNRC/M can be auseful tool for measuring annualprogress in overall profitability, to in-clude fees in the calculation compro-mises its value as a tool for assessingyoung members’ revenue contributions.That’s because many fees, such as NSFcharges, are punitive. Presumably acomprehensive youth program with aneducational component would producemore-financially literate adult memberswho make better money managementdecisions. They would be more likelyto avoid punitive fees, thereby reduc-ing total revenue. Mostly for that rea-son, this article will use the following,even-simpler, formula:
Marginal Contributionper Member (MC/M)= Total Loan InterestPaid per Member– Total Interest &Dividends Earnedper Member
With the help of two credit unions,the $36-million Point Plus CU (StevensPoint, Wis.) and the $92-million Space Age FCU (Aurora, Colo.), we’ll showhow the Marginal Contributions perMember (MC/M) can begin to shedlight on young members’ supposedunprofitability.
Overall marginalcontributions permember
Figure 1 shows the MC/M for allcredit unions by asset size for Januarythrough September 2007. As you cansee, for the most part MC/Ms risesteadily as credit unions become larger(except for the $1 billion-plus creditunions). It’s tempting to conclude thatthe positive correlation between credit
by Steve Rick and Philip Heckman
Although the MC/M of Space Agemembers now under the age of 18 isnegative, it’s not only what I expect,but what I hope to see. We have astrong emphasis on saving, and theseresults tell me it’s paying off. Ouryouth MC/Ms become more nega-tive as our young members approachage 18. Their share balances aregrowing as they develop soundsaving habits.—John Faries, Space Age FCU
1.0$0-0.5Asset Range (millions)
Marginal Contribution per Member
(Interest Paid Minus Dividends Earned)