How community banks & credit unions can build trust by improving financial literacy

“Didn’t your parents ever tell you that missing payments reduces your credit score?”

I winced as I overheard one friend, Jenny, make this painful statement to another, Emily. It wasn’t necessarily Jenny’s fault. She’d grown up with a strong understanding of finances. To her, Emily should have grown up with the same.

As the years have passed, we’ve seen first-hand the effect financial education has had on both Jenny, who was taught about money, and Emily, who wasn’t.

Despite earning a similar amount and being the same age, at 32, Jenny now has a mortgage, while Emily still rents. Jenny has a credit card she never utilizes more than 25% of and always pays off at the end of each month. Emily has debts she struggles to pay back. Jenny has an emergency fund. Emily panics when big costs hit her. Jenny invests a monthly amount into index funds, which she never takes out. Emily buys crypto when it’s high and sells during dips and crashes.

Unfortunately, Emily’s reality is one many are familiar with. In fact, a survey by Standard and Poor’s states that only 57% of adults in the U.S. are financially literate, meaning they’re able to make informed decisions about their finances, and they have a strong understanding of essential financial concepts such as debt, credit, and saving.

So, what needs to change?

Why should financial literacy matter to community banks and credit unions?

Financial literacy is about more than preventing defaults. It’s about breaking generational patterns that lead entire families into debt. It’s about building up the financial fortitude of your community. It’s about helping your customers and members start their own businesses, buy their own houses, and create fulfilling lives built on a bedrock of strong financial plans and household budgets.

Everyone tells you to teach people to fish rather than giving them fish, but they don’t tell you how. Financial literacy is your how.

As a community bank or credit union, you’re uniquely positioned to build generational brand loyalty, and the nature of your business makes trust a key component of your development toolbox. You can change the lives of your customers or members by teaching them the things Jenny knows, but Emily missed out on, a clear and innovative way of building that trust.

By improving the financial literacy of one person, you position yourself in a way that encourages entire families to become brand advocates, ensuring the continued strength of your financial institution for generations to come.

How to improve the financial literacy of your users

That’s all well and good, but the question remains: how do you actually start improving the financial literacy of your users? Let’s look at a few steps you can take.

Provide resources

There are a range of resources you can provide to improve the financial literacy of your customers and members. Including articles, blogs, guides, and videos on your website is one great way to start. You could also provide these resources in your banking app. You can tie in relevant resources with services your customers or members are using or searching for. For example, if your customers are looking to apply for a loan, the loan section of your website or app could be a great place to include useful information on how loans affect credit scores, how to ensure you budget correctly for a loan, and how to assess interest rates to find the right loan for you.

Build a personal finance management app

Personal finance management (PFM) apps, also known as budgeting apps, are a great way to improve the financial literacy of your users while also finding new opportunities to up-sell and cross-sell. PFM apps are available for download by the general public, making them a great way to access new markets. They help people by aggregating their finances so users can see exactly how much they have and by providing cutting-edge budgeting and personal financial management tools.

Implement a single platform designed to attract and retain users for life

Adopting a people-centric digital banking platform can give users an intuitive way to better understand their finances. Including all accounts in one place with a singular look and feel helps users understand their overall financial picture. Additionally, when data is aggregated across multiple financial products, you can hyper-personalize your customers’ or members’ experiences.

How Backbase can help

As a true platform across lines of business, Backbase is uniquely positioned to help you improve your users’ financial literacy. With our Engagement Banking Platform, you can show each customer or member distinctive, personalized insights into their financial wellbeing. Beyond generalized financial education, users can even see the exact steps they can personally take to improve their financial wellness based on their unique position in life.

These personalized insights ensure your users are heading in the right direction with their finances, helping you build trust and, ultimately, attract and retain more customers. With our platform, you’ll engage your customers or members, improve loyalty, and enhance trust, ultimately increasing your share of wallet and enhancing growth over the long term.

Schedule a chat with our team today to find out how your community bank or credit union can build generational, long-lasting trust.