CU Tomorrow Business Brief

Reaching Generation Debt: New Products and Strategies
Anya Kamenetz
Staff Writer, Fast Company Author, Generation Debt

About Us

Deeply embedded in the credit union tradition is an ongoing search for better ways to understand and serve credit union members. Open inquiry, the free flow of ideas, and debate are essential parts of the true democratic process. The Filene Research Institute is a 501(c)(3) not-for-profit research organization dedicated to scientific and thoughtful analysis about issues affecting the future of consumer finance. Through independent research and innovation programs, the Institute examines issues vital to the future of credit unions. Ideas grow through thoughtful and scientific analysis of top-priority consumer, public policy, and credit union competitive issues. Researchers are given considerable latitude in their exploration and studies of these high-priority issues.

CU Tomorrow is a Filene Research Institute clearinghouse for credit union young adult strategies. The project publishes research and open-source business plans to help credit unions attract younger members, promising young professionals, and younger volunteers. Initiatives include: • Business briefs—open-source, young adult business plans for credit unions. • 30 Under 30—entrepreneurial SWAT team of young credit union professionals. • Community—CU Tomorrow and Filene Web sites for publication and idea sharing. • Leagues—statewide collaboration to implement CU Tomorrow programs. • Recruiting—talented interns and new hires from high-profile universities. • Research—academic research, focus groups, online surveys, and interviews. Visit for more details.

Copyright © 2009 by Filene Research Institute. All rights reserved. ISBN 978-1-932795-67-7 Printed in U.S.A.

About the Author

Anya Kamenetz Anya Kamenetz is a staff writer at Fast Company, a business magazine in New York, where she reports on innovations in financial services. She writes the “Generation Debt” column on Yahoo! Finance as a personal finance expert for twenty- and thirtysomethings. In 2004, the Village Voice nominated her for a Pulitzer Prize in feature writing for her work on the feature series “Generation Debt: The New Economics of Being Young.” Generation Debt (Riverhead Books, 2006), her first book, made a carefully researched argument that young people face unique financial challenges. She regularly appears on major news networks including CBS, ABC, CNN’s Larry King Live, MSNBC, Fox News, CNBC, and NPR, commenting on young people’s financial issues.


The Filene Research Institute would like to thank PSCU Financial Services, the nation’s largest credit union service organization, for its generous financial support of past, present, and future studies of the under-30 population and the potential that young adults represent for the continued success of the credit union system. We also gratefully acknowledge the Credit Union Executives Society (CUES), Fiserv, and the Corporate Credit Union Network for their financial and intellectual support of research and projects focused on credit union growth. Additionally, the author would like to thank Jayd Gardina photography for the photo used in this brief.



By Ben Rogers, Driver, CU Tomorrow

Researchers and journalists know how easy—and dangerous—it is to get caught in an information bubble. By relying on the same data sources, talking to the same people, or maintaining old assumptions, it’s possible to publish information without actually advancing a conversation. That’s why we invited credit union outsider Anya Kamenetz, a respected author, journalist, and commentator on young adult financial issues, to address one of CU Tomorrow’s essential questions: How can credit unions address young adults’ financial needs? What follows in this final business brief from the Filene Research Institute’s CU Tomorrow project is Kamenetz’s take on the core financial issues facing young adults in America and how credit unions, as innovative member-owned cooperatives, can address those issues and ease young adults into the financial mainstream while acting in their best interests. Recognizing, however, that this is the final CU Tomorrow business brief, we’d like to start with an overview of the entire project.

CU Tomorrow has focused on young adult market information that can guide credit union decision making. By and large, the published business briefs have focused on core credit union products that even small credit unions can aim at young adults. These include student loans, transaction accounts, credit cards, and consolidation loans. Social media, mobile banking, and futuristic branch design are interesting—and we haven’t avoided them—but they are the equivalent of fancy catches and showy plays in a football game. They are fun, effective even, but only for a team that has mastered the basic products. Research from Filene Fellow and Ohio State University professor Jinkook Lee shows that young adults prize convenience and product features when choosing a financial institution. Credit unions that make it easy to open accounts and easy to transact are more likely to attract and keep young members. Member service—a category in which credit unions score perennially well—is important, but its third-place showing indicates that it’s probably more important as a retention tool, not something to lure members through the door in the first place. Following 18 months of qualitative and quantitative research, the project boasts a full portfolio of young adult innovation ideas


ranging from social media to board advisors to socially responsible credit cards, including: • Social media. • Consolidation loans. • Campus recruiting. • Young adult transaction accounts. • First credit cards. • Online search advertising. • Advisory directors and volunteers. • Student lending. • Young adult branches and e-delivery. • Young adult financial behavior and decision making.

30 Under 30
Nurturing talented young credit union professionals is essential. Far from focusing exclusively on attracting young members, Filene recognizes that attracting, nurturing, and promoting young talent is a superior strategic response to the aging of credit unions. Young professionals bring enthusiasm, built-in market awareness, and a fresh perspective on how cooperative finance can thrive in a world much changed from the 1930s, the 1990s, and even the early part of this decade. Filene’s 30 Under 30 group, selected from more than 160 applicants, spent the first half of the nine-month program researching the young adult market and brainstorming credit union products and services to match. In the spring of 2008, the larger group divided into working groups at its Chicago meeting. Each of the 10 working groups produced an innovation idea it then pitched, venture-capital style, to a general session of the California Credit Union League’s annual convention. What’s unique about the 30 Under 30 ideas—which range from recruiting strategies to online saving communities to philanthropyoriented debit cards—is that they were wholly researched by the group and actually launched in beta versions. For example, Change Your Savings, a debit program designed to build toward a savings goal by taking small deposits off each transaction, is in construction at Weber State Federal Credit Union ($87 million [M]) in Utah and at Travis Credit Union ($1.6 billion [B]) in California. And the Young Adult Member Advisory Panel, an out-of-the-box focus group system designed by another group, is up to 20 volunteer members at Wright-Patt Credit Union ($1.5B), where one of its designers runs young adult programs.

The 30 Under 30 group was so successful that the Credit Union National Association (CUNA) has adopted the program by committing to further the work of the original group and make the 30 Under 30 opportunity available for new rounds of young professionals.

Recruiting and Retention
What do young credit union professionals want? Turns out it’s not just money. A survey of more than 200 individuals shows that, while pay is important (and bad pay breeds resentment), credit union professionals get most excited about innovating at work, bosses who inspire them, and the good that credit unions do for members and communities. The takeaway: Even credit unions on tight budgets can attract and keep up-and-coming professionals by creating an inviting culture and by sticking to a core of refreshing, authentic member service. In addition to publishing business briefs about campus recruiting and the priorities of young credit union professionals, Filene has placed several MBA interns at credit unions. Through a partnership with the nonprofit Net Impact, a community of MBA students dedicated to changing the world through business, Filene has tapped into a segment of students passionate about social responsibility. Credit unions from Atlanta to Los Angeles to Vancouver, British Columbia, have taken projects they might otherwise have outsourced to consultants and instead brought in a 10-week MBA intern to do the work. The recruiting program simultaneously exposes the broader young professional community to credit unions’ business model and responsible approach to consumer finance—an increasingly attractive approach during the current economic downturn.

Credit Union Collaboration
Filene partnered with the Maryland/District of Columbia Credit Union Association and with the Wisconsin Credit Union League to bring CU Tomorrow research findings and implementation ideas to natural-person credit unions. Nearly 30 credit unions participated, and after 12 months, the program is bearing fruit. For example, in Wisconsin, Heritage Credit Union ($153M) has added a young adult transaction account and is recruiting for a young board member. Glacier Hills Credit Union ($66M) just launched an introductory credit card for 16- and 17-year-old members. Almost all the participating credit unions in Wisconsin have run young adult focus groups and culled valuable market-specific insights.

Community First Credit Union ($1.1B) in Wisconsin added a student credit card that substitutes a Community First Credit 101 online tutorial for a cosigner. The card charges a 9.99% annual percentage rate (APR) compared to the 18% or more of many first cards, and even its default rate jumps to only 13.99% for cardholders more than two months late on payments. Fox Communities Credit Union (Wisconsin; $683M) is launching an E-checking account aimed at younger members who use online banking, e-statements, and a debit card. The credit union will take advantage of each e-statement’s e-mail address to update members on relevant upcoming credit union events. In Maryland, IBEW 26 Federal Credit Union ($21M) is launching a credit card program for its union apprentices and working on a student loan product. On the other end of the scale, $666M Aberdeen Proving Ground Federal Credit Union is moving ahead with personalized debit and credit cards, student loans, mobile alerts for low balances, and an active student recruiting program. Also in Maryland, FedChoice Federal Credit Union ($253M) will bundle transaction and credit accounts for 18–25-year-old members. Additionally, the credit union hosts a separate Web site with a unique design and feel for these young adult members. These are just a handful of improvements CU Tomorrow credit unions are making. In some cases CU Tomorrow has been a catalyst to further work already under way, and in others the program’s research and recommendations form the framework around brand new approaches to attract and serve young adults. In almost every case, the credit unions have made strides in understanding their local young adult markets by inviting members and potential members to focus groups aimed at improving the credit union’s approach.

From the beginning of the project, Filene has sought to build a community around which young adult ideas could percolate, simmer, and spread. Even though their terms have expired, the 30 Under 30 group stays in touch and shares information. The CU Tomorrow blog at consistently attracts excellent commentary. And, even as it winds down, the project is supporting the launch of local young credit union professional groups with 30 Under 30 participants and other industry partners. Several posts at the CU Tomorrow blog became sounding boards for broad credit union issues. An October 2008 post questioned the National Credit Union Association’s (NCUA) use of Uncle Sam to convey a safety and soundness message, garnering more than a dozen comments (for and against) in the process. Other posts, detailing

topics as diverse as a technology-aided approach to credit union governance or a review of credit union peer-to-peer lender Zopa, brought conversation and candor to the challenge of making credit unions relevant to young adults. These five parts of the CU Tomorrow project have combined to bring thousands of credit union professionals and volunteers together to attack the demographic challenge facing credit unions. Nationally heralded young adult expert Anya Kamenetz follows on these efforts with five strategic recommendations.


The millennial generation is simultaneously one of the most discussed and least understood generations on the American scene. With their initial birth year given variously as 1978, 1980, or 1982, they number between 80 million and 95 million, constituting the largest single cohort ever in American history. Negative stereotypes of this generation have sometimes prevailed, with books such as Generation ME (Free Press, 2007) and The Dumbest Generation (Penguin, 2008) characterizing them as shallow, self-obsessed, easily discouraged, and addicted to screen time. But if you turn the looking glass around, you find the most ethnically and racially diverse, socially tolerant, and technologically adept group in history. They volunteer for charitable causes in record numbers in high school and college. And in the 2008 presidential election, voters 18–31, making up onequarter of the electorate, achieved the largest turnout by percentage since 1972, when 18-year-olds first got the vote. Although there are many good things to point out about this generation, economically and financially young people achieve distinction of a more negative kind. I’ve tagged them with the name “Generation Debt” because they carry unprecedented levels of student and consumer debt. They face stagnating or declining income compared to their parents’ generation, are the largest and fastest-growing segment of the population without health insurance, and compared to older generations they lack access to pensions and other benefits. Nevertheless, when you consider this generation’s economic future, perhaps more challenging than their current financial position is their mind-set. This generation has little knowledge of financial management even as they navigate an increasingly complex financial world. They need help with the basics of savings, credit management, and budgeting. When it comes to financial services, unmet needs abound for this generation. The good news is that credit unions can help. They can: • Offer low-cost credit products. • Encourage and reward the responsible use of credit. • Help young people start the savings habit. • Educate the community with topics and themes relevant to young people. • Encourage and provide access to financial planning tools that make it easy to learn about and build good management habits. With their unique position as nonprofit, cooperatively owned community institutions, credit unions can play the role of trusted intermediaries for people beginning their financial lives. And they can connect to this generation’s skills and affinities by taking advantage

of the latest technology in order to meet all these goals while also cutting costs and improving service. Like any business seeking to serve any demographic group, credit unions must avoid easy stereotypes, yet simultaneously take advantage of intelligent, research-based generalizations while seeking to meet the specific needs of young people. This report combines a brief review of the relevant statistics with a discussion of four very tangible money issues young people face: • Student debt. • Responsible use of credit. • Getting started with savings. • Money management and general financial literacy. I will present several case studies of companies, both within and outside the credit union world, that are putting specific products and programs into place to meet each of these needs.

Figure 1: Ten-Year Trend in Student Aid and Nonfederal Loans Used to Finance Postsecondary Education Expenses in Constant (2007) Dollars (in Billions), 1997–1998 to 2007–2008
$160 $140 $120 $100 Subsidized federal Stafford Loans Private and employer grants Institutional grants $40 Federal Pell Grants $20 State grants Other federal programs Federal campus-based programs Nonfederal student loans Education tax benefits Federal Parent Loans (PLUS) and Grad PLUS Loans Unsubsidized federal Stafford Loans

Constant (2007) dollars (in billions)

$80 $60

$0 97–98 98–99 99–00 00–01 01–02 02–03 03–04 04–05 05–06 06–07 07–08 Academic year
Source: College Board: Trends in Student Aid 2008.


Better Student Loans
Generation Debt is the moniker I use to refer to people in their teens, 20s, and early 30s. This is because this generation carries unprecedented levels of both student loan and credit card debt. And it all starts with student loan debt. By graduation, two-thirds of students at four-year colleges and universities carry federal student loan debt, according to the Project on Student Debt.1 This is up from less than one-half of graduates in 1993. Moreover, over the past decade, debt levels for graduating seniors rose from $9,250 to over $20,000 (a 60% increase after accounting for inflation). Even more worrisome is the growth of private student loan debt. These “alternative” education loans come from private banks and generally carry both higher interest rates and less favorable repayment terms. Interest rates on private loans have recently averaged 11.5%, ranging up to 15%,2 compared to 6.8% for federal Stafford Loans. In the first half of this decade, private student loan volume grew at a staggering average annual increase of 27%. Over the past 10 years, private student loans have risen from just 5% to 24% of total education loan volume. The trend is clear: Students and families are responding to tuition bills that increase on average at twice the rate of inflation by taking out loans that in some cases are not much better than putting the tuition bill on credit cards. The credit crunch is endangering the student loan status quo. The cost of credit is rising, and over 100 student lenders at the beginning of the 2008–2009 school year had already pulled out of the market, which is putting some barriers in the way of college access. A March 2008 report by the National Consumer Law Center found 10 significant parallels between the growth of the private loan market and the mortgage crisis.3 “Analysts say rising defaults, coupled with federal subsidy cuts, are beginning to strain the student loan industry . . . The question is whether a similar crisis [to the mortgage crisis] is on the horizon for student loan borrowers.” In the fall of 2008, 16 credit unions in 13 states partnered to offer an important solution for Generation Debt.4 The Credit Union Student Choice Loan offers many benefits to distinguish it from a standard alternative student loan: zero origination fees, significantly lower interest rates, in-school deferred payment, cosigner release, and a graduated repayment option. The loan is structured as a line of credit, which allows students to make multiple draws over the course of their entire college career, up to a maximum of $75,000, after completing just one application. It’s offered with service partners so that credit unions can participate without adding extra staff. “It’s a really great program,” says Dustin Limburg,5 marketing


representative for young adults at Wright-Patt Credit Union in Dayton, Ohio, which serves Wright State University. “No origination fees, no hidden fees, low interest rate, better and cheaper repayment options like graduated repayment. It really fills a need for the students.” In the atmosphere of the credit crunch, credit unions have a real opportunity to take a central role in helping finance college educations. Students and their families really stand to gain if more credit unions step up. Problem: Student debt Recommendations: Consider offering something like the Student Choice Loan at your credit union. Consider joining the CUNA Mutual Credit Union Student Loan Network to become a federal student loan provider. If you are able, offer an in-house student loan. Make sure your messaging promotes federally subsidized loans and grants before any type of alternative loan. Even credit unions that choose not to, or are not able to, offer the Student Choice Loan have the opportunity—better, the obligation— to promote responsible messages to young people about student borrowing. This is an issue that touches a high proportion of your younger members. “We don’t promote the private loan first,” says Limburg. “We make sure students look for free scholarships and grants first, then cheap federal loans, before we promote a private piece.” Here’s a suggested sequential message for credit unions with a campus presence to distribute to prospective borrowers: 1. Cut costs. Can you live at home? Can you take summer classes to finish a semester early? Can you work more hours while in school? 2. Find the free. Check out grants and scholarships, including new federal programs like the Public Service Loan Forgiveness program.6 3. Choose the cheap. Federal Direct Loans are the best option for most students, followed by Stafford Loans and PLUS Loans for parents. Interest rates range from 6.0% for Stafford Loans in 2008–2009 to 8.5% for PLUS Loans. 4. Then, and only then, pick the private. Make sure you borrow as little as necessary of these higher-cost loans. For more information, see Student Loans: Credit Union Opportunity during the Credit Crunch (2008), from the Filene Research Institute at


Figure 2: Growth in Student Debt at Four-Year Institutions
$40,000 $35,000


Average debt

$25,000 $20,000 $15,000 $10,000 $5,000 $0






$22,700 $12,200
06–07 5




01–02 Per borrower









Per bachelor’s degree recipient

Source: College Board: Trends in Student Aid 2008.

In each year between 2000–2001 and 2006–2007, an estimated 60% of bachelor’s degree recipients borrowed to fund their education. Average debt per borrower rose 18%, from $19,300 to $22,700 in 2007 dollars over this time period.

QUICK FACtS ABoUt StUdent deBt

FACT—Between 1993 and 2004, debt levels for graduating seniors with student loans more than doubled from $9,250 to $19,200—a 108% increase (58% after accounting for inflation) FACT—At public universities, debt levels for graduating seniors with student loans more than doubled from $8,014 to $17,250 over the past decade—a 116% increase (65% after accounting for inflation)

FACT—At private universities, debt levels for graduating seniors with student loans nearly doubled from $11,356 to $22,125 over the past decade—a 95% increase (49% after accounting for inflation) Source: Calculations by the Project on Student Debt from the National Center for Education Statistics (NCES), National Postsecondary Student Aid Study (NPSAS), 1993 and 2004 undergraduates, Data Analysis System (DAS).


Credit Management
By putting student loans at the center of the higher education aid system, we’ve perhaps inadvertently changed our national conversation around the responsible use of credit. Consider the reversal in our mores and our concept of thrift that has taken place in less than a single generation. It is now a perfectly normal and acceptable rite of passage for an 18-year-old with no income or credit history to sign papers making him or her solely responsible for five figures of debt. We shouldn’t be surprised, then, that the use of credit cards by college students has grown in tandem with the number of student loans. Required cosigners and low limits on student cards are a thing of the past, part of the loosening of the credit market over the past two decades. One credit card insider at a major bank confided in me that the student market constitutes 25% of its new-account goals.7 According to a survey by a national student lender in 2004, 91% of final-year students have at least one credit card, and three-fourths carry a balance,8 and according to a new report published by Sallie Mae in April 2009, the average indebted college senior is now carrying over $4,100, a 44% increase from 2004. Nearly one-third of students were putting tuition on their credit cards.9 Nor does that debt tend to get paid down after graduation. According to Tamara Draut, in 2004, 25–34-year-olds averaged $4,358 in credit card debt—47% higher than it was for baby boomers when they were in that age group in 1989.10 In 2004, the latest year for which national data are available, 25–34-year-olds with credit card debt spent on average 25 cents of every dollar of income to pay all their debt obligations. And 45% of those under age 34 reported using credit cards in the last year to pay for basic living expenses such as rent, mortgage payments, groceries, and utilities. By 2004, people under 25 had achieved the dubious distinction of becoming the fastest-growing age group in bankruptcy declarations,11 with the second-highest rate of bankruptcy overall. Times may be changing. The credit crisis has led to a swift shakeup in the consumer credit card market, what Robert Manning, author of Credit Card Nation, calls “the first crisis of the modern credit card industry.”12 The coming years may see a sharp restriction in the amount of unsecured debt offered to the young or anyone else. Still, patterns of borrowing and the adverse money management habits that come with them need to be replaced with responsible alternatives. As providers of lower cost and more borrower-friendly credit cards, credit unions can do much to encourage and promote the responsible use of credit among Generation Debt. The University of Wisconsin Credit Union (UWCU), located in Madison, Wisconsin, is the main provider of services to UW–Madison, serving about 40%

of incoming freshmen.13 College-age members make up one-fifth of its 128,000-strong member base. Chad LaFlash, director of research and development for UWCU, says, “We worry about students taking credit from the big banks because they get a T-shirt or an iTunes gift card—and they’re getting them from someone who’s going to charge $30, $40 late fees or 20% interest rates. We know our policies are so much more consumer friendly than that.”14 One way that UWCU rivals the big banks for the credit card market among UW students and recent graduates is with extensive online resources. This approach is really a necessity for any credit union that seeks to serve this market. An increasing number of students open their accounts from home even before coming to Madison for the beginning of the semester, and they are able to conduct many transactions and monitor their accounts online. UWCU will notify members by e-mail or text message if they have a balance on their credit card or are in danger of an overdraft, a service that saves members money even as it nudges them toward financial responsibility. Advertising and promotions can also be leveraged intelligently to make credit unions’ credit card offerings more competitive with those of the big banks. Advertising should stress the cost differences in interest rates and fees between a credit union credit card and a major bank credit card, an issue to which Generation Debt-ers are more likely to be sensitive and aware these days. LaFlash says that one change UWCU is considering in the future, if finances permit, is to add a loyalty program, one that is structured in some ways the opposite to major credit cards. “We want to find ways to encourage them not just to spend on the credit card but by managing it wisely.” Such a program would award bonuses and gifts in response to positive behaviors, such as keeping a low balance, making payments on time, or even passing courses each semester. “It’s not something that’ll be cheap or easy to do,” LaFlash acknowledges. But it’s a great example of clever marketing that simultaneously promotes credit unions’ competitive advantage and positive social mission. Problem: Credit card debt Recommendations: Reward responsible use of credit through better-designed loyalty programs. Use technology to help young people keep track of their credit use. Appeal to young people’s social responsibility when educating on the best uses of credit. Promote credit union credit cards as a lower-cost option for students and parents. The current financial crisis brings with it an opportunity for reform in the student and youth credit card market, which presents an opening for credit unions to gain market share. Lenders are becoming

more cautious and are tightening lending standards, which may lead to less aggressive solicitations and fewer preapproved applications for credit cards directed at the youth and student market. In the halls of government, the Credit Cardholder’s Bill of Rights (HR 5244) passed in the House in September 2008 and will come before the Senate in 2009. The bill places limits on fees and retroactive or “any time for any reason” interest rate increases, among other punitive practices. The Senate version of this bill may include specific restrictions on marketing to college students and requirement of a cosigner, as did the Student Credit Card Protection Act, first introduced in 2007. A clever cause-related marketing campaign would have credit unions encouraging students to organize around the Credit Cardholder’s Bill of Rights, perhaps in partnership with nonprofits like Qvisory.org15 or

Figure 3: Median Annual Earnings, by Gender and Education, Workers Age 25–34, 1975–2005 (2004 dollars)
% change 1975– 2005
–19.1% –34.2%

1975 Males All Less than high school High school diploma or equivalent Some college Bachelor’s degree or higher Females All Less than high school High school diploma or equivalent Some college Bachelor’s degree or higher
29,184 20,439 43,416 35,753

40,600 30,700

39,100 27,500

36,700 25,200

34,200 24,100

37,800 23,200

37,600 23,800

37,300 24,000

36,500 23,100

36,300 23,600

35,100 23,500

% change 1995– 2000
+10.50% –3.7%

% change 2001– 2005
–6.6% –1.2%















44,958 49,384

40,800 46,300

39,800 48,200

37,600 46,000

33,000 46,400

38,000 50,900

37,400 51,200

37,300 51,400

36,000 49,600

36,400 50,700

35,500 48,400

–21.0% –1.9%

+15.2% +9.7%

–5.1% –5.5%

27,600 19,900

29,100 19,600

28,900 18,200

27,500 17,100

30,100 18,500

31,200 17,900

31,600 18,000

31,500 19,800

31,000 18,700

30,300 17,800

+3.8% –12.9%

+9.5% +8.2%

–2.9% –0.5%















29,789 35,991

27,800 34,100

28,900 36,900

29,000 38,800

26,700 37,300

27,800 39,900

28,100 40,200

28,200 42,000

28,000 41,300

28,800 40,300

28,100 39,500

–5.7% +9.8%

+4.1% +7.0%

0.0% –1.7%

Source: U.S. Census Bureau, Current Population Survey, March and Annual Social and Economic Supplement, 1975–2006.


Figure 4: Average Credit Card Debt among Young Households with Credit Card Debt, 1989–2004 (2004 dollars)

$2,873 $2,305





$0 1989 1992 1995 18–24 1998 2001 25–34 2004

A company outside the credit union world that is taking an original approach to encouraging responsible youth credit use is Brighter Planet.17 Founded by some recent Middlebury College graduates, Brighter Planet offers a low-interest-rate credit card and check card in partnership with Visa and Bank of America with a unique affinity program: carbon offsets as a reward for purchases. The company is gaining significant traction with the student and twentysomething market and has done some innovative online marketing in support of its mission. For example, it partnered with the national advocacy coalition OneSky to run the Climate Matters video contest, hosted by the online video site Vimeo, with the winners also broadcast on TV via the Dish Network.

In keeping with the company’s socially responsible mission, Robbie Adler, outreach and – Source: Demos’ analysis of Survey of Consumer Finance data, 1989, 1992, 1995, 1998, 2001, and partnership manager, says, “We want to make 2004. sure we are helping to foster responsible use of credit.”18 “As recent grads, we take the issue of student and youth debt very much to heart and believe it is our company’s responsibility to educate honestly and effectively on this issue.” Brighter Planet’s Web site includes a comprehensive guide to credit card use, with information about credit scores and reports and building good credit; it also communicates with card members through a blog. The company plans to continue adding resources to the site and to promote financial literacy through its in-person appearances at environmentally focused events.

Making Savings Rewarding
With so much debt pressure on young people, it’s little surprise that they lack exemplary savings habits. Of course, the national household savings rate has dipped below zero in the recent past, so Generation Debt is not alone here. In recent quarters the savings rate has ticked back up past 4%—still below historical and international levels.19 Thrift has entered the modern conversation once again. There’s an opportunity now to improve savings habits among young people. Generation Debt-ers are very concerned about the economy—they consistently named jobs and the economy as their top issues in the 2008 election. But there is still a gap between perception and reality. A 2006 survey by Hewitt Associates found that only 31% of millennials who were

eligible to participate in a 401(k) actually did so.20 Most said that day-to-day expenses made it difficult to save. Perhaps most worrisome was that 81% said they planned to retire on money saved later on in their careers, which betrays a dangerous ignorance of the power of compounding over time. The savings squeeze is not surprising when you consider that the typical earnings of full-time workers ages 25–34 are lower today than they were a generation ago, except among women with college degrees. Indeed, a 2008 survey by Fidelity Investments found that more than half of young respondents said other financial priorities prevent them from saving for retirement, such as managing everyday finances, making mortgage payments, and, of course, managing student loan and credit card debt.21

For Gen X and Gen Y, Other Priorities Top Saving • 44% of Gen Y (aged 20–30) listed saving for retirement as a current obligation or goal. • More than half (51% Gen X and Gen Y) indicate other financial priorities prevent them from saving for retirement. When compared to saving for retirement, managing everyday finances, making mortgage payments, and managing credit card debt all rank higher as crucial goals for both Gen X and Gen Y. • For Gen Y, saving for retirement is even less crucial, with making car payments, paying off school loans, and saving for a home also ranking higher. — Fidelity Research on Gen X-Y Investor Behavior It may seem that credit unions are fighting an uphill battle to promote savings behaviors. Yet they can achieve success by focusing on the positive. The best strategies to promote savings among young people share two important characteristics. They are goal oriented, reaching young people with concrete discussions of personal goals, not aseptic charts and graphs. And, they include rewards along the way to further capture young peoples’ attention and sweeten the deal in favor of savings. Avi Karnani, formerly with Citigroup, is the 27-year-old founder of Thrive, a financial advisory startup aimed at folks his age. He’s surveyed thousands of twentysomethings to find out their perceptions about their financial lives. “We feel that young people talk about money all the time—what they don’t talk about are actual numbers,” he says.22 “Topics are centered around an event—graduating from college, grad school, buying a house, moving in with a girlfriend, planning a wedding, or having kids.” Thrive’s free service is organized the same way, making it easy for people to see their progress toward specific savings goals they create.

One financial startup combines the goal and rewards strategies in one. Last year, Jon Gaskell and Mike Ferrari launched SmartyPig. com, which Gaskell describes as a 21st-century version of a piggy bank.23 “We’re encouraging people to save up before they buy stuff,” he says, a seemingly basic idea that may be news to the site’s twentysomething audience who are used to financing purchases with credit. SmartyPig allows users to go online to set up a savings account with an automatic monthly contribution, and a specific goal such as “vacation” or “wedding.” Participants can share goals online with family and friends, who can also contribute to their accounts through a convenient savings gift card. SmartyPig accounts pay a competitive rate, 3.05% at the time of this publication, through West Bank of Des Moines. SmartyPig shares revenue with the bank and also partners with retailers that offer rewards, such as a 5% bonus if you cash out to a dedicated gift card. Credit unions can’t always compete with interest rates like these. But many are being creative and making investments to promote their savings programs with rewards. “The first thing I came up with is, let’s double the interest rate,” says Matt Davis, director of public relations at Members Credit Union in Winston-Salem, North Carolina.24 “That about made our president fall out of his chair.” Members Credit Union’s What Are You Saving For? program pays a 1.0% dividend and also includes monthly drawings for additional cash prizes and a Web site where members can talk together about their savings goals. “I think what we’re doing is changing the conversation about saving,” Davis says. “What we’re saying is listen, Americans don’t want to fail, they want to succeed. So how can we give them savings victories? Start small.” Davis freely admits that he sees the program as an important brand builder, part of his credit union’s social mission, even though it may be a loss leader.

Problem: Low savings rates Recommendations: Stress the positive rewards of savings. Center savings programs on life milestones and small, achievable goals. Build in rewards to start the savings habit. Use online tools like blogs and public wish lists to make savings social. Consider a savings gift card program like that used by SmartyPig. Similarly, Langley Federal Credit Union (LFCU) of Hampton, Virginia, offers Langley Saves, a free program designed to help younger members learn to save. The Langley Saves (S62) account features an “upside down” three-tiered dividend rate structure. The first $500 earns a dividend rate of 5%, the next $2,000 earns 3%, and balances above $2,500 earn 1.25%. In return, participants agree to make a recurring deposit of at least $10 a month and limit withdrawals to

two per calendar year. LFCU’s Langley Saves program has a wealth of resources for participants, including free workshops and advice from a financial counselor, and a subscription to the America Saves quarterly newsletter.

Financial Planning Made easy
In the end, whether the issue is debt, savings, or money management, the key to improving financial behavior for Generation Debt always comes back to education. Unfortunately, this is lacking among youth. The Jump$tart Coalition for Personal Financial Literacy does a biennial survey of financial literacy among high school seniors, with simple questions about credit cards, inflation, and sales tax.25 The financial literacy scores of the 2008 high school senior class ranked even lower than those of their 2006 peers—the mean score was only 48.3% of the questions, down from 52.4% in 2006. A companion survey of college students showed a D grade—62% of the questions were answered correctly.


A 2008 survey by Fidelity Investments found that young people know they need financial help.26 In a combined survey and ethnographic study of over 1,200 under-40-year-olds, 62% of older respondents and 57% of younger respondents couldn’t say they were making good decisions about their finances. For both groups, parents were the No. 1 resource they turned to for help and guidance with their finances. However, nearly 1 in 5 didn’t turn to any resource at all. The huge educational gap that persists is also a market opportunity for financial services innovators who can become trusted intermediaries and offer real solutions. A number of credit unions and startups are tackling this gap with offerings in financial planning and money management made easy. Many of the startups are relying on new technologies exclusively, while credit unions are able to complement online education resources with offline programs for the most effective results., launched in 2007, is one of a new wave of online money management services that include Geezeo, Buxfer, Xpenser, Quicken Online, and Jwaala. Among these, Mint is by far the largest personal finance Web service, with over half a million users. With an average age among users of 31, the service demonstrates the strong demand among young people for financial management resources made easy. These services show a bit of the generational divide in that they depend on younger users’ high level of comfort with technology; this generation is more concerned with convenience and access to information than with security and privacy. Most of these services, including Mint, ask users to enter a password—protected by layers of secure encryption similar to those used by banks—for their

Web accounts, enabling them to retrieve account information. The proprietary software automatically categorizes transactions, allowing users to see all their spending, debt, savings, and investments in one place. “It’s designed to be very powerful when you need it, yet not overwhelming at the same time,” says 28-year-old founder Aaron Patzer.27 “That really fits with Mint’s vision to be effortless. All of this happens without you putting in information”—down to the level of individual transactions. The system allows users to quickly check their balance from a cell phone before making a purchase, or to receive e-mails or text messages when they are charged a fee or are in danger of an overdraft. Better access to information is a key part of financial management and insight for young people, but it’s only the first step. Welldesigned online programs can help with education and advice as well. Karnani’s Thrive came from the insight that “there are four different reasonably sophisticated financial products that didn’t exist before—401(k)s, IRAs, student loans, credit cards—while financial literacy effectively doesn’t exist.” Thrive, in its first two weeks, attracted over $100M in collective balance sheets from thousands of people, mostly in the younger demographic. When you sign up for Thrive’s free service, you provide passwords for your bank and brokerage accounts. Thrive crunches the numbers and returns directives in plain English, based on a hierarchy of spending containment, debt management, rainy-day saving, and then investment. Intriguing features include a personalized “financial health score” based on 11 factors in debt, saving, and spending, and easy-to-understand indicators such as how much you could retire on today and how large of a mortgage you can afford. Thrive’s feature design is supported by research by Matt Wallaert, who left a PhD program at Cornell to become the company’s lead scientist. His background is in the emerging field of judgment and decision making, areas relevant to financial decision making. He has worked with Barry Schwartz, a prominent behavioral psychologist whose book The Paradox of Choice (Ecco, 2003) describes how more options are not always better. “We’ll be structuring the decision in a way that doesn’t give people 200 options,” Wallaert says of the site’s investment programs. “You want to make it as easy as possible for people to say yes.”28 Another psychological insight is that, similar to the idea of organizing savings around specific life milestones and goals, Thrive’s budgeting education is based on behavioral indicators. “Most budgets express goals in dollars,” says Karnani. “Instead of saying, save $50, we’d say, eat out one time less. We combine that with monthly budget tracking, which shows your behavior patterns over time.” While not explicitly educational, Thrive’s services allow users to learn about

better financial decision making over time through real-life feedback and clear, simple directions. Although innovative and inspiring, many of these online companies don’t necessarily have their business models ironed out. By accepting advertising and referral fees from banks and credit card companies, they expose themselves to doubts about the trustworthiness of their recommendations. And by collecting personal information, they expose themselves to concerns about security lapses. What may constitute a more sustainable future for these technologies is for banks and credit unions themselves to provide enhanced online money management services to their customers directly, building on an existing trust relationship. UWCU is an exemplar of what can be done in the credit union world using the latest technology. “We’ve been nationally recognized for our advanced online services,” says LaFlash. “About 25% of our members join totally online before they even come to school.” UWCU has e-mail and text alerts, and over 75% of members accept paperless statements—a significant cost savings for the credit union. Last year, it launched an internally developed service called MoneyLink, which allows members to send and receive payments from friends and family whether or not they are credit union members. Six months ago it added mobile banking, allowing members to check balances or make transfers from a cell phone. One could easily imagine a credit union like UWCU adding behavioral budgeting and recommendations similar to those that Thrive offers. Online Banking Is Important • Percentage of Gen X and Gen Y who say being able to do all banking online is important to them: 72%, 79%, respectively. • Percentage of Gen X and Gen Y customers combined who spend at least one hour a week paying bills or banking online: 49%. • Percentage of Gen X and Gen Y who spend at least one hour a week on social networks (39%) or blogging (14%). • Percentage of Gen X and Gen Y combined who say a local branch is important: 87%. Credit unions, of course, have the unique ability to complement online offerings with offline education programs for the richest possible experience. UWCU runs the highly successful “Financial Safety Net” series, with online libraries of resources and regular seminars on goals such as saving for college, buying a first home, managing credit, and balancing a checkbook. “We get great responses—we have seminars where we have over a hundred people,” says LaFlash. “Students are busy and often not very motivated to learn something

other than what they’re cramming in their heads on a daily basis, so we’re happy when we can capture their attention.” Problem: Lack of financial knowledge and education Recommendations: Provide online management tools, calculators, and budgeting advice. Partner with nonprofits and student organizations to enhance counseling and advisory services.

Figure 5: 401(k)s
401(k) account balance Salary range $20,000–$40,000 $40,000–$60,000 $60,000–$80,000 $80,000–$100,000 More than $100,000 Median account balance $6,719 $16,393 $39,383 $56,194 $57,794

401(k)s and job tenure Job tenure 0–2 years 2–5 years 5–10 years Average account balance $4,571 $10,414 $17,120

Average 401(k) asset allocation Type of investment Equity funds Balanced funds Bond funds Money funds Guaranteed investment certificates/stable value funds Company stock Other Unknown Share of account balance 50.40% 19.00% 7.50% 4.40% 6.50% 9.30% 1.70% 1.20%

Wright-Patt Credit Union takes a multifaceted partnership approach to financial education. “We spend a lot of time educating students and giving them the tools they need to make that happen,” says Limburg. This includes both seminars and one-on-one sessions for members with certified financial planners or a counselor from the nonprofit Greenpath Debt Solutions. Most intriguing is Wright-Patt’s support of a peer-to-peer counseling organization at Wright State called Wright Financial Path. “They train students to relate to other students,” says Limburg. “We’ve had a really good relationship with them since they came to be a few years ago. We help them develop their financial education materials, brochures, and underwrote their costs. If we get requests from a classroom for financial education, we can team up with someone from Wright Financial Path and they can deliver the message from a student level, while I do it from the credit union side.” Employees in their 20s make up only 12% of all 401(k) participants. Figure 5 shows a profile of accounts held by 401(k) participants in their 20s.



Conclusion and Recommendations

By Ben Rogers Driver, CU Tomorrow

It is comforting to see recognition of and support for initiatives that CU Tomorrow has championed. To review, in this Generation Debt brief, Anya Kamenetz advocates for: • Low-cost credit products: These show up in CU Tomorrow briefs on consolidation loans, student loans, and first credit cards. • Responsible use of credit: This is also prominent in the consolidation loan, student loan, and first credit card briefs. • Helping young people start to save: Filene’s 30 Under 30 groups felt very strongly about saving and outlined business innovations like prize-based savings, online peer support for saving, debitfueled savings programs, and goal-based saving. • Educating the community with relevant topics and themes: Both the social media business brief and the Chrome branch concept brief point to the opportunity in becoming young adults’ trusted financial advisor. • Simple and relevant financial planning tools: Again, the social media business brief and the Chrome branch concept brief pair efficient electronic interaction with credit unions’ natural tendency to help members. The details of the CU Tomorrow and the Kamenetz recommendations vary, but the thrust is the same. Credit unions that are willing to double down on traditional values like thrift, sound financial planning, and extending responsible credit to young adults stand to benefit. Those that add innovative products and improved electronic delivery around these themes will benefit even more. Building on Kamenetz’s suggestions, here are eight more, garnered from the Filene Research Institute’s 18 months of research and experience with the CU Tomorrow young adults project: • Use the parents. Existing credit union members are usually the best advocates, and children, including those in their late teens, overwhelmingly use accounts at their parents’ financial institutions. Market through parents to show that the credit union provides the full range of services that young adults need: transaction accounts, debit and credit cards, student loans, and other loans. • Advertise and issue credit. Waiting for young adults to establish firm credit histories means that credit unions lose out on the first relationship. Credit unions should consider lightening credit requirements, responsibly offering credit to members in their late teens, and segmenting their membership to market appropriate loans directly to young adults.


• Emphasize transactions. Few young adults are actively saving in their late teens and early twenties, but they are spending. Emphasizing a transaction account with perks like customized card designs, rewards, high interest, or free ATM access will push the credit union’s account to the front of the wallet while garnering interchange income. • Hire young talent. Targeting young professionals for midlevel and management roles accomplishes two things for the credit union: It diversifies the management and succession pool, and it brings a young adult perspective to business decisions. • Improve electronic delivery. As native users of electronic financial services, young adults judge financial institutions by their Web sites and electronic capabilities. An outdated, ugly, or poorly designed Web site is akin to an outdated, ugly, or poorly designed branch. Neither serves to attract consumers, and they can also frustrate existing members. • Bundle products. Make it easy and automatic for young adults to open multiple credit union accounts by attaching useful products like debit-oriented transaction accounts and credit card overdraft protection to the basic share account. • Use social media wisely. Using social media as a way to attract young adults is alluring, but success is not automatic. Credit unions should consider business goals first—such as member growth, member feedback, cost reduction, or account penetration—and then determine whether social media can make a profitable contribution toward those goals. • Actively recruit younger volunteers. To serve young adults well, credit unions should make a place for young adult voices in governance. Pitch volunteer opportunities to aspiring young professionals by emphasizing altruistic service along with the résumé benefits of leading a multimillion dollar financial institution. Attracting young adults to credit unions as members, professionals, or volunteers is not always easy, but it is simple. By using the ideas from this business brief and those from the Filene Research Institute’s CU Tomorrow project, forward-looking credit unions can understand the market, identify their own needs, and make management and strategic decisions that will keep credit unions vital for the upcoming generation and beyond.



Other References
This paper reviewed the four top issues that face Generation Debt: student loans, credit card debt, savings, and a lack of financial knowledge. The following credit unions are mentioned: • Wright-Patt Credit Union, Dayton, Ohio, • University of Wisconsin Credit Union, Madison, Wisconsin, • Members Credit Union, Winston-Salem, North Carolina, • Langley Federal Credit Union, Hampton, Virginia, Other companies mentioned are the following: • Brighter Planet, Middlebury, Vermont, • Thrive, New York, New York, • SmartyPig, Des Moines, Iowa, •, San Francisco, California,



1. Project on Student Debt, “Quick Facts on Student Debt,” September 4, 2007, 2. National Consumer Law Center, “Paying the Price: The High Cost of Private Student Loans,” March 2008, 3. Ibid. 4. National Association of Student Financial Aid Administrators, “Credit Union Student Choice Bucks Trend in Private Student Lending, Tops $25 Million in Loan Approvals,” news release, August 18, 2008, cncu081908.html. 5. Dustin Limburg, interview with the author, November 20, 2008. 6. “Public Service Loan Forgiveness,” html/#pslf. 7. Anya Kamenetz, Generation Debt (New York: Riverhead Books, 2006). 8. Tamara Draut, “The Economic State of Young America,” – Demos, May 6, 2008, currentpublicationID=2C71F2BC%. 9. Sallie Mae, “How Undergraduate Students Use Credit Cards: Sallie Mae’s National Study of Usage Rates and Trends, 2009,” April 2009, credit_card_study. 10. Draut, “The Economic State of Young America.” 11. Dirk Smillie, “Bankrupt by 25,” New York Times, April 5, 2004. 12. Eric Dash, “The Last Temptation of Plastic,” New York Times, June 12, 2008. 13. 14. Chad LaFlash, interview with the author, November 10, 2008. 15., “A New Nonprofit Online Advocacy and Service Organization That Supports the Health, Financial Well-Being, and Career Goals of Young Adults from 18 to 34 Years Old.” 16., “Campus Progress, Part of the Center for American Progress, Works to Help Young People—Advocates, Activists, Journalists, Artists—Make Their Voices Heard on Issues That Matter.” 17. 18. Robbie Adler, interview with the author, October 1, 2008. 19. Bureau of Economic Analysis, “Personal Saving Rate,” www.bea. gov/briefrm/saving.htm.


20. Hewitt Associates, “How Well Are Employees Saving and Investing in 401(k) Plans,” April 2006, www.hewittassociates. com/Intl/NA/en-US/KnowledgeCenter/ArticlesReports/ ArticleDetail.aspx?cid=4483&tid=0. 21. Fidelity Investments, “Fidelity Research on Generation X/Y Shows That Financial Intentions and Actions Are Often in Conflict,” news release, August 28, 2008, article/pressRelease/idUS140580+28-Aug-2008+BW20080828. 22. Avi Karnani, interview with the author, October 10, 2008. 23. Jon Gaskell, interview with the author, July 1, 2008. 24. Matt Davis, interview with the author, July 2, 2008. 25. Jumpstart Coalition for Personal Financial Literacy, (retrieved November 21, 2008). 26. “Fidelity Research on Generation X/Y Shows that Financial Intentions and Actions Are Often in Conflict,” Business Wire, August 28, 2008, BWIRE.20080828.20080828005442/GIStory/. 27. Aaron Patzer, interview with the author, October 12, 2008. 28. Matt Wallaert, interview with the author, October 10, 2008.


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