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

Young Members = Revenue

by Steve Rick and Philip Heckman
Do young members help or hurt MNRC/M as a measure of the average With the help of two credit unions,
your bottom line? Conventional wis- member’s effect on the credit union’s the $36-million Point Plus CU (Stevens
dom says that young members cost balance sheet. Groups of members Point, Wis.) and the $92-million Space
credit unions money, but conventional with a negative MNRC/M (the savers) Age FCU (Aurora, Colo.), we’ll show
wisdom doesn’t always know what it’s provide funds for growth, while the how the Marginal Contributions per
talking about. The following statements MNRC/M for the entire membership Member (MC/M) can begin to shed
are all true: indicates the degree to which UWCU light on young members’ supposed
A. In the short run, most members borrowers add to accumulated earn- unprofitability.
under age 18 are an expense to ings. At UWCU, the overall MNRC/M
the credit union is the annual gauge of the cooperative’s Unconventional
B. As adults, most members now health, which directly benefits all of its Wisdom
under age 18 will add more in members. Although the MC/M of Space Age
revenue than they subtract in Although the MNRC/M can be a members now under the age of 18 is
expense. useful tool for measuring annual
negative, it’s not only what I expect,
C. As adults, some members now progress in overall profitability, to in-
under age 18 will contribute a clude fees in the calculation compro- but what I hope to see. We have a
greater net revenue than their mises its value as a tool for assessing strong emphasis on saving, and these
age-mates who didn’t join until young members’ revenue contributions. results tell me it’s paying off. Our
after age 18. That’s because many fees, such as NSF youth MC/Ms become more nega-
D. Nobody knows quite why C is charges, are punitive. Presumably a tive as our young members approach
true. comprehensive youth program with an age 18. Their share balances are
Few credit unions have challenged educational component would produce growing as they develop sound
conventional wisdom on the supposed more-financially literate adult members saving habits.
“unprofitability” of youth accounts. who make better money management —John Faries, Space Age FCU
Even the most ardent youth advocates decisions. They would be more likely
acknowledge that they believe youth to avoid punitive fees, thereby reduc-
accounts generate more expense than ing total revenue. Mostly for that rea- Overall marginal
revenue. What motivates them is the son, this article will use the following, contributions per
overriding belief that the benefits of even-simpler, formula: member
raising financially literate youth justify Figure 1 shows the MC/M for all
Marginal Contribution credit unions by asset size for January
program costs. They’re convinced that per Member (MC/M)
young members eventually become through September 2007. As you can
“profitable.” And they count on “con- = Total Loan Interest see, for the most part MC/Ms rise
Paid per Member steadily as credit unions become larger
sumer inertia” to keep young members
from switching financial institutions – Total Interest & (except for the $1 billion-plus credit
later. Dividends Earned unions). It’s tempting to conclude that
per Member the positive correlation between credit
But what if a credit union didn’t
have to lose money on its young mem- Fig. 1
bers? Then no credit union would Marginal Contribution per Member
have an excuse not to have a robust (Interest Paid Minus Dividends Earned)
youth program. Here’s a statistical look
at the conventional wisdom of youth’s $250
“unprofitability:” 207
197 202
Marginal contribution 179 $182
The 2007 edition of Savingteen in-
150 145
troduced the concept of Marginal Net 127
Revenue Contribution per Member 110
(MNRC/M). MNRC/M equals total loan 101
100 87
interest paid plus total fees paid minus
total interest and dividends earned (all
per member). 50 $35
Some credit unions, such as the $1-
billion University of Wisconsin CU
(UWCU) in Madison, use the $0- 0.5- 1-2 2-5 5-10 10-20 20-50 50- 100- 200- 500- $1,000 Overall
0.5 1.0 100 200 500 1,000 +
MNRC/M in strategic planning. UWCU
management and board consider the Asset Range (millions)


Fig. 2
Marginal Contribution per Member Overall Unconventional
$200 192.57
Space Age’s “core members” are
the ones we captured as youth.
$161.71 Figure 9 shows that the dividends
150 144.69 that Space Age’s adult borrowers in
$126.42 the 20-25 and 30-35 age groups
earned are significantly higher for
100 those who joined before they turned
18, compared to those who joined
after. They not only look to us for
50 loans, but they also make up the
core deposits that we lend out and,
ultimately, need to survive.
$0 —John Faries, Space Age FCU
Point Plus CU Point Plus CU’s Peers Space Age FCU Space Age FCU’s Peers

gages and vehicle loans.

union asset size and MC/M is due to unions, Space Age’s average member But by not probing deeper than this
economies of scale. But the MC/M makes an above–average contribution. gross measure of “profitability,” credit
does not include operational expenses, unions that dismiss the value of youth
so efficiencies are not a factor in this MC/M by current age programs do an injustice to the rev-
trend. Rather, as credit unions become and by age when enue contributions that youth make af-
larger, they tend to offer more sophisti- joined ter age 18. Figure 4, which compares
cated investment instruments that at- Comparing MC/Ms for youth and members by the age at which they
tract more member deposits that make adult members supports conventional joined the credit union, reveals that
possible larger, more profitable loans, wisdom. Clearly, young members as a those who became members as youth
and higher MC/Ms. group are a current drag on both credit do indeed make a positive contribution
Figure 2 shows how the overall unions’ bottom lines (Fig. 3). The fact as adults.
MC/Ms of our sample credit unions that youth make such a poor showing At first glance, Figure 4 also seems
compare. Point Plus’s average member compared to their elders is hardly sur- to reinforce the conventional wisdom
contributes less net revenue than the prising. After all, adults have signifi- that spending on youth doesn’t provide
average member of similar-size credit cantly larger deposit accounts and a sufficient return on investment. How-
unions. And compared to peer credit millions of dollars in profitable mort- ever, that conclusion ignores the fact
Fig. 3 Fig. 4
Marginal Contribution per Member Overall Marginal Contribution per Member Overall
by Current Age by Age When Joined
$250 $250
200 200

150 147.42 150

100 100

50 50

-$5.60 -8.11 0

-$50 -$50
Point Plus CU Space Age FCU Point Plus CU Space Age FCU

Now <18 Now 18+ Joined <18 Joined 18+


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

Fig. 5 Fig. 6 Fig. 7

Marginal Contribution per Marginal Contribution per Marginal Contribution per
Member (Adults 20-25) Member (Adults 25-30) Member (Adults 30-35)
by Age When Joined by Age When Joined by Age When Joined
$450 $450 $450 $432.37
400 400 400

350 350 350

300 300 300

250 250 250

200 200 200
$178.73 177.05

150 150 150

100 100 100

$78.18 73.41
50 50 50 32.32

$0 $0 $0
Point Plus CU Space Age FCU Point Plus CU Space Age FCU Point Plus CU Space Age FCU

Joined <18 Joined 18+ Joined <18 Joined 18+ Joined <18 Joined 18+

that adults of all ages who joined after MC/Ms of similar-age bars) are better borrowers than their
age 18 include a wider, more financially adults who joined as Point Plus peers who don’t join until
diverse, range of individuals. Conven- minors later (green). And Figure 9 shows that
tional wisdom begins to crumble when Figures 5, 6, and 7 compare the nearly all adults who joined either
we examine groups of adult members MC/Ms of adult members in three nar- credit union as youth are better savers
in narrower age ranges. row age groups by whether they once than their fellow members of the same
were youth members. Conventional age. The challenge is to identify the
wisdom predicts that the adult contri- factors that cause these effects and learn
butions of former youth members never how to influence them.
Wisdom exceed that of their age-mates who
joined after age 18. And three of the six What MC/Ms suggest
To remain viable a credit union needs comparisons shown in Figures 5, 6, and Preliminary marginal contribution
continuing streams of core depositors 7—where the green bars exceed the red analysis leads to the following conclusions:
and quality borrowers. Space Age bars in each Space Age pair—support 1. Exploring youth “profitability” further
relies heavily on indirect lending. this assumption. is desirable. First of all, MC/M compar-
Many of these borrowers have a But consider former Point Plus CU isons among more finely sliced member
loan and a minimum par balance youth members. They defy conventional subgroups over time will help zero in
share account at the credit union, and wisdom by out-performing their age- on what specific programs are most
that’s it. This generates a marginal mates in all three age groups (Figs. 5, 6 effective in raising more “profitable”
contribution that’s much higher than and 7)—where the red bars exceed the members. For example, how would
green in each Point Plus pair. In other graduation from a youth educational
we get from our “core members”
words, MC/Ms of like adults show that program affect the MC/Ms of adults of
alone. Although that’s nice to see, it’s the same age?
young members are a significant rev-
vital that we figure out how to get enue source for Point Plus CU, better Second, this preliminary MC/M analy-
them to move their deposits to us. In than their age-mates who don’t join un- sis reveals nothing about what might be
the meantime, these indirect borrow- til later. As Point Plus CU’s experience influencing adult financial behavior. For
ers provide the resources to offer the attests, youth can be worth pursuing example, did the adult members who
products and services that attract and and serving. joined the credit union as youth do so
retain youth, the core depositors who Figures 8 and 9 go a step further by because their parents have influential
view Space Age as their PFI [primary displaying the income and expense fac- characteristics in common?
financial institution]. tors that go into the Point Plus and Finally, it’s important to make a distinc-
Space Age MC/Ms. Figure 8 shows that, tion between individual and group
—John Faries, Space Age FCU
in all three age groups, adults who MC/Ms. A positive and growing overall
joined Point Plus CU as youth (red MC/M is the sign of a healthy credit


Fig. 8
Interest Adult Borrowers Paid Unconventional
by Age When Joined Wisdom
$450 $440 Everyone benefits from youth educa-
tion: Dividends paid to members in-
355 crease and so does interest earned on
350 loans. We plan to continue our youth
300 financial education efforts through our
high school branch because we be-
214 lieve that education will produce a
200 181 higher marginal contribution per mem-
150 ber between the ages of 20 to 35.
100 $84
We also plan to implement a staff
63 53 pay-for-performance plan, and will use
50 33 47
marginal contribution analysis to help
Point Plus CU Space Age FCU Point Plus CU Space Age FCU Point Plus CU Space Age FCU
us determine its effectiveness.
Ages 20-25 Ages 25-30 Ages 30-35 —Gail G. Sawyer, Point Plus CU
Joined <18 Joined 18+
that drive growth. A youth program
Fig. 9
that invites grandparents to match
Dividends Adult Borrowers Earned young savers’ efforts could tap a poten-
by Age When Joined tially deep well of lower-cost funds.
3. Increasing services to youth can in-
Note change in y-axis scale crease the amount of business they do as
compared to Figure 8
adults. Space Age CU’s data reveal the
25 promising trend that adults who joined
as youth use more credit union servic-
20 es. Among Space Age adults aged 20
to 25, average service use was the
15 14.31 14.37 same (2.0). But average Space Age
service use was 2.4 to 2.0 in favor of
10 adults aged 25 to 30 who joined as
6.91 7.25 $7.20 youth, and 2.3 to 2.1 in favor of
5 4.43 4.12 adults aged 30 to 35 who joined as
2.65 3.18 youth.* Credit unions that recognize
the inertia of consumers to change
Point Plus CU Space Age FCU Point Plus CU Space Age FCU Point Plus CU Space Age FCU providers will use their youth pro-
Ages 20-25 Ages 25-30 Ages 30-35 grams to lock members in for life.
Joined <18 Joined 18+ All in all, these early MC/M data
undermine the conventional wisdom
that young members are a drag on a
union. A credit union with a negative off now. One of the reasons that cur-
credit union’s performance. Let’s con-
overall MC/M must rely on less-profitable rent youth MC/Ms are lower than
tinue to statistically question whether
investment income and less-popular fee adults’ as a group is that youth often
long-standing assumptions about the
income to stay in business. However, an don’t have access to the number one
lack of a return on investment in
individual member with a negative credit union money maker—credit
youth are really true. ■
MC/M based on thousands of dollars in cards. Finding a low-risk way of ex-
low-interest savings and checking ac- tending credit to qualified young * Corresponding service-use-per-member fig-
counts is quite valuable. Such a saver, members under parental supervision ures were not available from Point Plus CU.
who values liquidity over earnings, helps will automatically improve youth
lower a credit union’s cost of funds. MC/Ms by raising interest income. An Steve Rick ( is a CUNA
2. Expanding service to youth can pay example of the kind of opportunity to economist and University of Wisconsin CU
look for might be with the 36% of board member. Pat Wesenberg
school districts that the School Nutri- ( is CEO of Point
Unconventional Plus CU and a CUNA board member. Gail
Wisdom tion Association reports accept credit
and debit payments in their cafeterias. Sawyer ( is vice
Our young members are a significant president of operations for Point Plus CU,
On the other side of the balance and John Faries ( is
source of revenue. We need to serve sheet, college saving funds, for example, vice president of accounting & marketing
the youth market as a means of survival. which are relatively cheap to administer for Space Age FCU. Philip Heckman
—Pat Wesenberg, Point Plus CU because they have few transactions, are ( is CUNA’s director
a desirable way of building the assets of youth and young adult programs.