The millennial generation came of age during the financial crisis, and problems with the global economy may have overshadowed a more serious issue for these young people: They don't understand financial systems. Financial literacy is a crucial part of making prudent monetary decisions, but studies show society has failed to provide many young people with the economic education they need.
This could have far-reaching negative implications for both these millennials and society as a whole. Many of these same individuals are underbanked, and have yet to develop the credit that will be necessary to make large purchases later in life. If credit union executives reach out to these young people, they could potentially increase membership numbers while tapping into a market that has eschewed traditional banks.
Low financial literacy over a wide age range
Millennials and other young people are struggling with financial issues, and this problem has been demonstrated over several studies. In results released last year from the Program for International Student Assessment survey, which tested the financial literacy of 15-year-olds in 2012, nearly 18 percent of U.S. students scored at the lowest level of understanding. While it is easy to brush that statistic off because it polls young people who are not fully integrated into the financial world, it's not clear that Americans' fiscal skills develop with age.
"Millennials are likely to miss payments and default."
In a survey of young people, the American Institute of CPAs learned that 24 percent of millennials had missed a bill payment. This type of activity harms credit scores, and the situation becomes more alarming when viewed next to a Brookings Institute study which found 42 percent of first-year college students with federal student loans reported they had no federal loans or said they did not carry any student debt. These individuals are likely to miss payments and default, actions which will harm their credit score and make it difficult to borrow in the future.
Credit unions provide a safe haven
While financially confused young people present a risk to lending organizations, credit unions can use this unfortunate situation as an opportunity. Rather than punishing young people for their lack of understanding, these organizations can work with millennials to educate them about their financial options. This can transition into membership and loan opportunities. Many of these borrowers may have lower credit scores because of mistakes made in the past. Credit unions can examine these cases holistically and may be able to provide loans that other institutions will not.