Total U.S. consumer debt decreased by 4.3% from 2008 to 2009. During that same period, total revolving debt dropped by 9.6% and credit card debt sunk 10.5%.
Statistics like these always generate interesting reactions. Taken alone, they suggest that Americans may finally be trying to kick their debt habits.
Americans have amassed an astounding $847 billion in credit card debt. Add that figure to the $1.6 trillion in non-credit card debt, and total consumer debt reaches a staggering $2.46 trillion. Amazingly, that’s an average of nearly $109,000 for every citizen over the age of 18. Worse, 26% of American adults have become so overwhelmed by financial responsibilities that they cannot pay all of their bills on time. In September 2009 Fitch Ratings reported that the default rate on credit cards hit a record 11.52%.
Debt is a hard habit to break. Despite tremendous attention on this problem from non-profit organizations, government initiatives, financial literacy programs, and an emergence of powerful PFM solutions like Mint, Geezeo, Wesabe, and Jwaala, this problem simply will not go away.
The problem is less about amount of information available than it is about how that information is being delivered. It is embarrassing to talk about personal finances. It is also inconvenient. As our schedules become more and more cramped, taking an hour out of our day to sit down with a financial counselor is often an unrealistic expectation. Worse, when consumers muster up the courage to actually seek help from traditional financial counseling sources, they often find themselves the targets of relentless salesmanship, outrageous fees, and an onslaught of confusing industry jargon.
What if credit unions could offer consumers a way to receive customized financial guidance without disclosing any personal identifying information? What if people could get straightforward action steps on how to improve their financial lives on their own schedule from anywhere with an internet connection? What if they could receive all of this information for free?
The Filene Research Institute’s i3 program sought to answer these questions with the creation of Debt in Focus, an anonymous online financial assessment tool written in easy-to-understand language. A massive beta test launched at 288 credit unions across North America proved that the concept has significant merit. In less than a year 150,000 consumers completed the program, giving them a customized budget, action steps on how to improve their financial position, and suggestions on responsible ways to navigate through age-based life stages.
These results would not have been possible had the Filene i3 Team simply gone the traditional financial education route, endlessly creating new brochures, posters, informational websites, and speeches. Encouraging change requires much more than throwing new information at people. Instead, focus on reframing how that information is delivered. Observe human behavior, identify pain points your market has to deal with, and relentlessly prototype new ways of easing those pains. Debt in Focus works because it breaks down the barriers that prevent people from seeking help.
The Texas Credit Union League’s REAL Solutions program took a stick of dynamite to these barriers in April 2010. Thanks to a REAL Solutions grant, they purchased Debt in Focus licenses for all participating credit unions in the state. The launch coincided with the launch of Texas’ new alternative payday loan solution and Financial Literacy Month.
What are you doing to make change happen?
MATT DAVIS, aka The Credit Union Warrior, is an advisor with specializing in implementation. The Filene Research Institute has partnered with Matt to present, advise, and complete project work with credit unions based on their i3 ideas and innovative processes.