Are You Educating Your Customers?

A 2014 piece by Intuit Quicken reported that in a national financial capability study performed by FINRA, participants were asked five questions related to everyday personal finance and economics - 61% of the participants were unable to correctly answer more than three questions.

Hundreds, if not thousands, of surveys speak to the financial illiteracy of Americans. While the statistics seem discouraging, they reveal a significant opportunity for banks to expand market presence and gain a competitive advantage by acting as a source of information for financial consumers. We see three primary benefits of raising the education level of consumers.

Sophisticated and knowledgeable customer base  The 2007 FDIC Money Smart Survey indicated that financial education had a dramatic impact both on the community and on the banks that serve the community. For example, 43% of graduates opened a checking account after gaining pertinent financial education. Of those graduates who already had an account, 22% opened another account. Some might say that educating the customer base would cause a drop in profits gained from overdraft and NSF fees. We would argue that banks would have a greater opportunity to cross-sell other financial products that can generate additional, consistent long-term revenue.

A rise in customer loyalty  In January 2015, EverFi noted that customer loyalty in banks is at an all-time low and that banks must find new ways to attract the younger generation. There is a clear correlation between higher financial literacy and better customer engagement, more use of financial services and decreased likelihood to switch financial institutions. It’s important to start the process of building a knowledgeable customer base early to capture young customers and retain them through the many life stages of their financial maturation. 

Community Reinvestment Act (CRA) recognition Participating in or supporting financial literacy programs for low-and moderate-income individuals can generate positive consideration under the CRA. The importance of continuously looking for ways to maintain or improve CRA records can’t be overstated. The last thing you want to slow your bank’s growth is an unsatisfactory CRA rating, because it can result in delays or denials of mergers, acquisitions or the expansion of services. 

The long-term benefits of financial education to your community and your bank are well worth the effort today.

What is your bank doing to help support your community with financial education?

Tweet to @HORNEBanking with hashtag #FinancialLiteracy to share best practices.