According to The Financial Brand, financial literacy has traditionally been viewed by banking and lending executives as “little more than an obligatory community service, and thus receive perfunctory attention from the senior leadership team. And that’s typically where it ends.”
However, new research suggests that promoting financial literacy goes far beyond being a good corporate citizen. In fact, it has a direct impact on profitability and portfolio performance. For example:
- The National Credit Union Administration reports that credit unions with financial education offerings have a credit card delinquency ratio of 1.05%, a full 40 basis points below credit unions without.
- According to Raddon Research Insights, people who understand the basics of personal finance are both more engaged and more profitable for the banks and credit unions that provide them with financial education.
- Raddon goes on to report that financially literate customers provide far more ROI and are more likely to responsibly utilize depository and credit products.
The importance of financial literacy is gaining increasing attention from government and business entities throughout the United States. From the creation of the National Financial Literacy and Education Commission to more than a dozen states requiring at least a semester of personal finance education, and many businesses offering financial education to employees, it is an issue that is more in the mainstream dialogue than perhaps ever before.
However, research suggests that there is still a long way to go. A National Financial Educators Council found that a lack of personal finance knowledge cost US consumers $352 billion in 2021, or an average of about $1,400 per person.
Furthermore, the previously referenced Raddon study found that the average American grossly overrates their level of financial literacy. In the survey of 1,200 participants, 44% described themselves as “extremely” or “very” financially literate. However, in a 15-question financial literacy quiz that accompanied the survey, more than half failed. And only 6% scored an A.
As a partner to many financial and lending institutions, a partner that is responsible for the health of their portfolios and acts as an extension of their brand to improve customer satisfaction, Servicing Solutions is a strong proponent of financial education. In addition to our belief that is the right thing to do, we have seen firsthand the benefits it can provide to our clients and their portfolios.
Whether it is educating a subprime customer about the true cost and credit impacts of missing a single payment, appropriate upselling of financial products to more savvy consumers, or helping customers work through a one-time financial emergency, our approach to customer service and collections is built on providing benefits to our clients and their customers. In the short and long run, this works to build customer loyalty while protecting the financial interests of our clients.
Ready to “Invest In Real Experience” with a partner that treats your customers as if they were our own? Let us know at firstname.lastname@example.org.