Why Banks are Doubling Down on Financial Literacy
Many banks are now seeing financial literacy efforts in their communities as one of their responsibilities, despite internal struggles to justify these programs.
Banks large and small are doubling down on financial education, a new industry paper suggests. Their focus is on developing and delivering school-based programs.
The Rise of Financial Literacy
In the last five years, 77 percent of bank executives with a role in financial literacy programs say those programs have gained prominence at their institution; 83 percent say those programs will gain even more importance over the next five years.
Meanwhile, 72 percent of these executives say their financial literacy budgets have increased the past five years, and 80 percent expect those budgets to increase the next five years. These findings are detailed in a white paper based on a survey of banks, thrifts, and credit unions from American Banker parent SourceMedia.
Banks regard financial education in their communities as “a sense of duty” that “dovetails” with their “core civic role in safekeeping deposits, providing credit to households and building wealth,” the paper says.
financial institutions struggle internally with their support of financial literacy programs, mainly because these programs cost money and provide no direct revenue
The Struggle to Financially Support Financial Literacy
But it also notes that financial institutions struggle internally with their support of financial literacy programs, mainly because these programs cost money and provide no direct revenue. About one in four executives say that demonstrating return on investment to upper management is one of their top challenges. They usually end up justifying the expense as a way to build the bank’s brand and image in the wake of the financial crisis.
“After a bruising decade in which the industry’s reputation has been damaged by periodic scandals and blowback against federal bailouts, financial institutions are also motivated by a desire to improve the way they are perceived,” the paper states. “Corporate reputation” was the second most cited reason for investing in financial literacy programs – right behind “community involvement/outreach.”
Nearly all the bankers surveyed believe that financial education should be mandatory in kindergarten through 12th grade classrooms. They view their involvement as critical because most schools don’t require financial literacy instruction – and those that do often have a difficult time finding qualified teachers.
Banks struggle to justify the cost of financial literacy programs.Click To Tweet
As banks struggle to justify the cost of financial literacy programs, they should find better metrics to evaluate success, the paper suggests. For example, they could develop a mobile app to go along with a specific program and tally downloads.
And when it comes to in-person interaction, the paper says, partnering with a firm that designs programs and sends out qualified representatives in the bank’s name may be preferable to sending out banker volunteers. More than a third of banks don’t take the time to develop their own materials – instead, they use free resources from the government. Those resources may be effective, but the banks miss out on a chance to build their brand in the community and reap the full rewards of their investment.
This is an encouraging report. Some might see the banks’ concern with return on investment as self-serving and a bit alarming, as it seems to suggest that they are only engaged for their own purposes. That’s a legitimate concern.
But a sense of altruism runs through the report – at least among the bankers most involved in the financial literacy programs. Open-ended statements in the report show that bankers identify with “philanthropic and civic-minded motivations.” As one said, “We exist for customers and the community. Financial literacy is a key component.”
Yes, these bankers must prove value to upper management. Yes, the banks hope to profit in some way – mostly, it seems, by gaining individuals’ trust. But that’s just life – and it serves as a financial lesson in itself.