National Credit Union Youth Week • April 20-26, 2008

Young Members = Revenue
by Steve Rick and Philip Heckman Do young members help or hurt your bottom line? Conventional wisdom says that young members cost credit unions money, but conventional wisdom doesn’t always know what it’s talking about. The following statements are all true: A. In the short run, most members under age 18 are an expense to the credit union B. As adults, most members now under age 18 will add more in revenue than they subtract in expense. C. As adults, some members now under age 18 will contribute a greater net revenue than their age-mates who didn’t join until after age 18. D. Nobody knows quite why C is true. Few credit unions have challenged conventional wisdom on the supposed “unprofitability” of youth accounts. Even the most ardent youth advocates acknowledge that they believe youth accounts generate more expense than revenue. What motivates them is the overriding belief that the benefits of raising financially literate youth justify program costs. They’re convinced that young members eventually become “profitable.” And they count on “consumer inertia” to keep young members from switching financial institutions later. But what if a credit union didn’t have to lose money on its young members? Then no credit union would have an excuse not to have a robust youth program. Here’s a statistical look at the conventional wisdom of youth’s “unprofitability:” MNRC/M as a measure of the average member’s effect on the credit union’s balance sheet. Groups of members with a negative MNRC/M (the savers) provide funds for growth, while the MNRC/M for the entire membership indicates the degree to which UWCU borrowers add to accumulated earnings. At UWCU, the overall MNRC/M is the annual gauge of the cooperative’s health, which directly benefits all of its members. Although the MNRC/M can be a useful tool for measuring annual progress in overall profitability, to include fees in the calculation compromises its value as a tool for assessing young members’ revenue contributions. That’s because many fees, such as NSF charges, are punitive. Presumably a comprehensive youth program with an educational component would produce more-financially literate adult members who make better money management decisions. They would be more likely to avoid punitive fees, thereby reducing total revenue. Mostly for that reason, this article will use the following, even-simpler, formula:
Marginal Contribution per Member (MC/M) = Total Loan Interest Paid per Member – Total Interest & Dividends Earned per Member
Fig. 1

With the help of two credit unions, the $36-million Point Plus CU (Stevens Point, Wis.) and the $92-million Space Age FCU (Aurora, Colo.), we’ll show how the Marginal Contributions per Member (MC/M) can begin to shed light on young members’ supposed unprofitability.

Unconventional Wisdom Although the MC/M of Space Age members now under the age of 18 is negative, it’s not only what I expect, but what I hope to see. We have a strong emphasis on saving, and these results tell me it’s paying off. Our youth MC/Ms become more negative as our young members approach age 18. Their share balances are growing as they develop sound saving habits. —John Faries, Space Age FCU Overall marginal contributions per member Figure 1 shows the MC/M for all credit unions by asset size for January through September 2007. As you can see, for the most part MC/Ms rise steadily as credit unions become larger (except for the $1 billion-plus credit unions). It’s tempting to conclude that the positive correlation between credit

Marginal Contribution per Member
(Interest Paid Minus Dividends Earned)
197 179 162 207 202 $182

Marginal contribution The 2007 edition of Savingteen introduced the concept of Marginal Net Revenue Contribution per Member (MNRC/M). MNRC/M equals total loan interest paid plus total fees paid minus total interest and dividends earned (all per member). Some credit unions, such as the $1billion University of Wisconsin CU (UWCU) in Madison, use the MNRC/M in strategic planning. UWCU management and board consider the

145 127 110

101 87 67









5-10 10-20 20-50



200- 500- $1,000 Overall 500 1,000 +

Asset Range (millions)


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Fig. 2

Marginal Contribution per Member Overall
192.57 $161.71






Point Plus CU

Point Plus CU’s Peers

Space Age FCU

Space Age FCU’s Peers

Unconventional Wisdom Space Age’s “core members” are the ones we captured as youth. Figure 9 shows that the dividends that Space Age’s adult borrowers in the 20-25 and 30-35 age groups earned are significantly higher for those who joined before they turned 18, compared to those who joined after. They not only look to us for loans, but they also make up the core deposits that we lend out and, ultimately, need to survive. —John Faries, Space Age FCU
gages and vehicle loans. But by not probing deeper than this gross measure of “profitability,” credit unions that dismiss the value of youth programs do an injustice to the revenue contributions that youth make after age 18. Figure 4, which compares members by the age at which they joined the credit union, reveals that those who became members as youth do indeed make a positive contribution as adults. At first glance, Figure 4 also seems to reinforce the conventional wisdom that spending on youth doesn’t provide a sufficient return on investment. However, that conclusion ignores the fact

union asset size and MC/M is due to economies of scale. But the MC/M does not include operational expenses, so efficiencies are not a factor in this trend. Rather, as credit unions become larger, they tend to offer more sophisticated investment instruments that attract more member deposits that make possible larger, more profitable loans, and higher MC/Ms. Figure 2 shows how the overall MC/Ms of our sample credit unions compare. Point Plus’s average member contributes less net revenue than the average member of similar-size credit unions. And compared to peer credit
Fig. 3

unions, Space Age’s average member makes an above–average contribution.

MC/M by current age and by age when joined Comparing MC/Ms for youth and adult members supports conventional wisdom. Clearly, young members as a group are a current drag on both credit unions’ bottom lines (Fig. 3). The fact that youth make such a poor showing compared to their elders is hardly surprising. After all, adults have significantly larger deposit accounts and millions of dollars in profitable mortFig. 4

Marginal Contribution per Member Overall by Current Age

Marginal Contribution per Member Overall by Age When Joined








-$5.60 -8.11






Point Plus CU Now <18

Space Age FCU Now 18+


Point Plus CU Joined <18

Space Age FCU Joined 18+



National Credit Union Youth Week • April 20-26, 2008

Fig. 5

Fig. 6

Fig. 7

Marginal Contribution per Member (Adults 20-25) by Age When Joined
$450 400 350 300 250 200 150 100 50 $0 Point Plus CU Joined <18
$78.18 60.92 26.08 $48.78

Marginal Contribution per Member (Adults 25-30) by Age When Joined
$450 400 350 300 250 200 150 100
73.41 $178.73 $351.70

Marginal Contribution per Member (Adults 30-35) by Age When Joined
$411.25 $432.37

400 350 300 250
206.68 177.05

200 150 100 50

50 $0 Point Plus CU Joined <18 Space Age FCU Joined 18+

Space Age FCU Joined 18+


Point Plus CU Joined <18

Space Age FCU Joined 18+

that adults of all ages who joined after age 18 include a wider, more financially diverse, range of individuals. Conventional wisdom begins to crumble when we examine groups of adult members in narrower age ranges.

Unconventional Wisdom To remain viable a credit union needs continuing streams of core depositors and quality borrowers. Space Age relies heavily on indirect lending. Many of these borrowers have a loan and a minimum par balance share account at the credit union, and that’s it. This generates a marginal contribution that’s much higher than we get from our “core members” alone. Although that’s nice to see, it’s vital that we figure out how to get them to move their deposits to us. In the meantime, these indirect borrowers provide the resources to offer the products and services that attract and retain youth, the core depositors who view Space Age as their PFI [primary financial institution]. —John Faries, Space Age FCU

MC/Ms of similar-age adults who joined as minors Figures 5, 6, and 7 compare the MC/Ms of adult members in three narrow age groups by whether they once were youth members. Conventional wisdom predicts that the adult contributions of former youth members never exceed that of their age-mates who joined after age 18. And three of the six comparisons shown in Figures 5, 6, and 7—where the green bars exceed the red bars in each Space Age pair—support this assumption. But consider former Point Plus CU youth members. They defy conventional wisdom by out-performing their agemates in all three age groups (Figs. 5, 6 and 7)—where the red bars exceed the green in each Point Plus pair. In other words, MC/Ms of like adults show that young members are a significant revenue source for Point Plus CU, better than their age-mates who don’t join until later. As Point Plus CU’s experience attests, youth can be worth pursuing and serving. Figures 8 and 9 go a step further by displaying the income and expense factors that go into the Point Plus and Space Age MC/Ms. Figure 8 shows that, in all three age groups, adults who joined Point Plus CU as youth (red

bars) are better borrowers than their Point Plus peers who don’t join until later (green). And Figure 9 shows that nearly all adults who joined either credit union as youth are better savers than their fellow members of the same age. The challenge is to identify the factors that cause these effects and learn how to influence them.

What MC/Ms suggest Preliminary marginal contribution analysis leads to the following conclusions: 1. Exploring youth “profitability” further is desirable. First of all, MC/M comparisons among more finely sliced member subgroups over time will help zero in on what specific programs are most effective in raising more “profitable” members. For example, how would graduation from a youth educational program affect the MC/Ms of adults of the same age? Second, this preliminary MC/M analysis reveals nothing about what might be influencing adult financial behavior. For example, did the adult members who joined the credit union as youth do so because their parents have influential characteristics in common? Finally, it’s important to make a distinction between individual and group MC/Ms. A positive and growing overall MC/M is the sign of a healthy credit

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Fig. 8

Interest Adult Borrowers Paid by Age When Joined
$450 400
355 426 $440

350 300 250 200 150 100 50 $0
$84 63 33 53 76 47 203 181 214

Point Plus CU Space Age FCU Point Plus CU Space Age FCU Point Plus CU Space Age FCU Ages 20-25 Ages 25-30 Ages 30-35 Joined <18 Joined 18+

Unconventional Wisdom Everyone benefits from youth education: Dividends paid to members increase and so does interest earned on loans. We plan to continue our youth financial education efforts through our high school branch because we believe that education will produce a higher marginal contribution per member between the ages of 20 to 35. We also plan to implement a staff pay-for-performance plan, and will use marginal contribution analysis to help us determine its effectiveness. —Gail G. Sawyer, Point Plus CU
that drive growth. A youth program that invites grandparents to match young savers’ efforts could tap a potentially deep well of lower-cost funds. 3. Increasing services to youth can increase the amount of business they do as adults. Space Age CU’s data reveal the promising trend that adults who joined as youth use more credit union services. Among Space Age adults aged 20 to 25, average service use was the same (2.0). But average Space Age service use was 2.4 to 2.0 in favor of adults aged 25 to 30 who joined as youth, and 2.3 to 2.1 in favor of adults aged 30 to 35 who joined as youth.* Credit unions that recognize the inertia of consumers to change providers will use their youth programs to lock members in for life. All in all, these early MC/M data undermine the conventional wisdom that young members are a drag on a credit union’s performance. Let’s continue to statistically question whether long-standing assumptions about the lack of a return on investment in youth are really true. ■
* Corresponding service-use-per-member figures were not available from Point Plus CU. Steve Rick ( is a CUNA economist and University of Wisconsin CU board member. Pat Wesenberg ( is CEO of Point Plus CU and a CUNA board member. Gail Sawyer ( is vice president of operations for Point Plus CU, and John Faries ( is vice president of accounting & marketing for Space Age FCU. Philip Heckman ( is CUNA’s director of youth and young adult programs.

Fig. 9

Dividends Adult Borrowers Earned by Age When Joined
$30 Note change in y-axis scale compared to Figure 8 25 20 15 10
$6.26 6.91 4.43 1.88 4.12 2.65 3.18 7.25 $7.20 14.31 14.37 24.82

5 $0

Point Plus CU Space Age FCU Point Plus CU Space Age FCU Point Plus CU Space Age FCU Ages 20-25 Ages 25-30 Ages 30-35 Joined <18 Joined 18+

union. A credit union with a negative overall MC/M must rely on less-profitable investment income and less-popular fee income to stay in business. However, an individual member with a negative MC/M based on thousands of dollars in low-interest savings and checking accounts is quite valuable. Such a saver, who values liquidity over earnings, helps lower a credit union’s cost of funds. 2. Expanding service to youth can pay

Unconventional Wisdom Our young members are a significant source of revenue. We need to serve the youth market as a means of survival. —Pat Wesenberg, Point Plus CU

off now. One of the reasons that current youth MC/Ms are lower than adults’ as a group is that youth often don’t have access to the number one credit union money maker—credit cards. Finding a low-risk way of extending credit to qualified young members under parental supervision will automatically improve youth MC/Ms by raising interest income. An example of the kind of opportunity to look for might be with the 36% of school districts that the School Nutrition Association reports accept credit and debit payments in their cafeterias. On the other side of the balance sheet, college saving funds, for example, which are relatively cheap to administer because they have few transactions, are a desirable way of building the assets


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