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REAL Solutions Partners participated in three information-gathering sessions this summer featuring payday lending alternatives, the Volunteer Income Tax Assistance (VITA) Program and asset-building savings accounts, and student outreach.
During the session on payday lending alternatives, the partners gained insight into the world of payday lending, including some interesting statistics about payday loan borrowers. For example, 68 percent are under age 45, 4 percent are over age 65, 82 percent have a high school diploma or better, 52 percent have some college or a degree, 42 percent own their own homes; 100 percent have steady income and an active checking account, 96 percent are aware of the finance charge, and 92 percent believe that payday advance is a useful service.
Representatives from Prospera CU in Wisconsin
shared information about the payday lending model they use which includes branches in Good Will stores. They also demonstrated a new software product they helped produce which is a fully automated web-based loan origination system designed especially for credit unions.
The group also listened to presentations from their peers. Mike Daugherty, CEO, Community Plus FCU, shared information on Emergency Loans which are the credit union's alternative to payday loans, and Bruce Adler, Manager of CEFCU’s “Own a Loan Program”, outlined the Quick Advance loans offered by his credit union. Both speakers addressed program successes, key learnings, and pitfalls to avoid when introducing payday alternatives to members.
During the session on the VITA program, the partners listened to presentations from the Internal Revenue Service, who sponsors the program, the Center for Economic Progress, a non-profit agency who helps coordinate VITA sites throughout the state, North Side Community FCU, who currently participates in the program, and Joni Senkpeil, ICUL’s Director of Small CU Development, who recently completed training as a VITA tax-preparation volunteer (see related story, “IL CUs take first steps toward offering VITA”).
VITA is an IRS program that helps low- and moderate-income taxpayers (generally $40,000 and below) complete their annual tax returns at no cost. A large number of these taxpayers are eligible for an Earned Income Tax Credit (EITC). An estimated 25 percent of those eligible for EITC are unaware of it and do not receive the full refund.
Most of these taxpayers (70 percent of EITC recipients) use fee-based tax preparation services and take out high-cost refund anticipation loans. "Credit unions can help educate these people that they can file their tax returns for free and can avoid unnecessary refund anticipation loans, which have exorbitant costs for getting cash-in-hand. If the returns are filed electronically, it usually only takes a week to get the funds into a savings account," said Jacob.
"Credit unions can participate in VITA at a variety of involvement levels. At a minimum, a credit union can hang posters advertising the program, which are free from the IRS, in the lobby. Educating credit union employees about what VITA is and who qualifies for the free tax preparation can be helpful to members who see the posters and ask about it," said Senkpeil.
Credit union employees and directors can learn how to prepare tax returns and can serve as VITA volunteers. "I went through the IRS' online training program so I can prepare taxes at VITA sites. The educational material was comprehensive and I feel confident about completing tax returns," said Senkpeil.
In addition, credit unions can partner with local agencies such as the Center for Economic Progress or AARP, at VITA sites in the local community. For the highest involvement, a credit union can work with the IRS to become a designated VITA site.
Asset building savings accounts was another topic addressed at a partners meeting. Megan O'Neil, Independent Asset Building Consultant, explained "Asset building is an anti-poverty strategy that helps low-income people move toward self-sufficiency, a tool to build wealth through appreciating assets such as higher education, vocational training, small business, and home ownership, and a catalyst that creates economic momentum that can help individuals to escape the cycle of poverty permanently."
Asset building is typically accomplished through Individual Development Accounts (IDAs). IDAs are special savings accounts for qualified low-income individuals which offer matching government or foundation funds that help the total grow quickly. For example, when a person deposits $100 earned income into an IDA, the program sponsor contributes a matching sum of $100, bringing the account balance to $200.
To participate, a person must be EITC eligible or have an annual household income less than twice the poverty level (about $40,000 for a family of four), and a net worth of less than $20,000 excluding the value of a residence and one motor vehicle per household.
In an IDA program funded by the federal government, there are restrictions on how the funds in an IDA can be used: to acquire a first home, access higher education or training, or start or support a small business. Also, the maximum federal contribution of matching funds is $2,000 per individual or $4,000 per household. IDA programs funded by foundations have similar guidelines to the federal program and can provide some flexibility in use of funds and in total dollars matched.
Credit unions can participate by starting an IDA program or by partnering with United Way organizations, corporations and employers, foundations, and state and local governments to work with established IDA programs as the financial institution where the funds are held. IDA programs are a natural extension of participating in the VITA program.
"For many individuals, an IDA is the first step in breaking the cycle of poverty and becoming part of the mainstream financial services industry who needs auto loans, mortgages and college savings accounts," said O'Neil.
At the partners meeting regarding student outreach, three CUs discussed their experiences with operating student-run branches in local high schools: South Division CU at Brother Rice High School in Evergreen Park, Earthmover CU at Oswego High School and Prairie Trail CU at Joliet West and Joliet Central High Schools (see related story, “Prairie Trail CU Opens Two In-School Branches”).
At Brother Rice High school, SDCU has worked since 2002 to create a “center of influence” for students and their finances. Financial counseling has been a hallmark service, where students learn about working with money, and establishing and using credit wisely, with credit cards offered to students based on their grades. Above all, students are treated as adults in the handling of their finances, to which the students have responded well. The credit union has also strived to make financial education relevant to the students and has expanded into the local community with its “NEO Generation” marketing efforts. Students are provided access to the “Matrix 21” online banking vehicle, a newsletter, and online student carrels offering fast and functional financial information.
Also key to its efforts is getting the parents on board which has fostered family discussions about money, something that many of them did not have the benefit of themselves growing up. SDCU’s student branch has more than 1,200 members and an average balance of $375 - $425, with higher balances usually sitting with those who have managed their money well and if their parents have stayed on as members.
Earthmover CU has operated its "Panther CU" branch at Oswego High School since the fall of 1997. Students work at the credit union as part of their Banking and Finance class, which satisfies their consumer education credit, Mondays through Fridays during the lunch hours. Student workers, which are chosen by the school administrators, are paid and receive a grade, and are eligible if they have at least a 3.0 GPA. Students staff three teller stations, coordinate marketing and promotional activities, and make classroom presentations, which stress financial literacy, not the credit union or its products and services.
The credit union hosts new membership drives with iPods, Wii machines, and sweatshirt hoodies as giveaways, markets at football and basketball games with on-field contests, and has a float in the homecoming parade. This student-run CU generates about 80-100 new accounts every year. About two-thirds remain members after they graduate and some even go on to become employees at one of its other branches.
The student outreach meeting was rounded out by RIA FCU, who discussed its KARS (Kids Are Rewarded for Saving) program. This initiative teaches kids up to age 12 the value of saving and provides rewards to help them reach their goals. The CU uses “Axle”, a fully decorated VW bug as its mascot, as well as a savers punch card to earn prizes and hosts other fun age-appropriate activities.
RIA FCU plans to bring “CU4 Reality” into local schools. CU4Reality is an interactive learning experience developed by teachers and credit unions in New Hampshire along with America’s Credit Union Museum. This middle school program includes in-class financial education and ends with a financial reality fair, where students get to simulate life as an adult out in the real world. Students choose an occupation then receive information on the corresponding salary. The students move between stations, such as housing, transportation, insurance, and utilities, making selections for their lifestyles. Along the way they are also exposed to various spending temptations, such as electronics, vacations and clothing. Last, they take a spin on the “Wheel of Misfortune” where they are dealt an unforeseen financial circumstance, such as a major car repair, and have to determine how to balance their budget.
REAL Solutions, a signature program of the National Credit Union Foundation expanded to Illinois during 2008. "REAL" stands for "Relevant, Effective, Asset-building, Loyalty-producing" Solutions. The program is designed to help credit unions offer dozens of services that have proven successful in serving people of modest means, working families, and "low wealth" households. There are five categories for the products and services: education, transaction services, savings, credit, and home ownership.
Two more meetings with the Illinois partners are scheduled to take place in 2008 to explore the topics of “Innovations for Reaching Young Adults” and “Immigrant Outreach.”
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