Kentucky faces a widespread problem — financial illiteracy.
Just 30 percent of my fellow residents of the Bluegrass State can get four of five questions right on a simple personal finance quiz from the Financial Industry Regulatory Authority. The basics of compound interest escape many of us. Few realize they’d pay less interest on a 15-year mortgage than on a 30-year loan.
This lack of financial know-how costs ordinary Kentuckians hundreds of dollars a year in higher-than-necessary interest payments, excessive fees, and foregone income.
Kentucky’s credit unions are working to close this knowledge gap —and allow Kentuckians to keep more of their hard-earned dollars.
Financial literacy is a challenge for people all over the country. More than half of those over the age of 30 don’t feel confident about establishing a long-term financial plan. More than three-quarters of millennials don’t know the basics of personal finance. All told, financial illiteracy costs the average American roughly $1,200 a year, according to a report from the National Financial Educators Council.
Sixteen percent of Kentucky households spent more than they earned in 2018. Roughly half of our fellow residents don’t have a rainy-day fund to cover unexpected expenses.
Kentucky’s credit unions are committed to turning this around. For instance, one Lexington credit union’s website offers tutorials, infographics, calculators, and games on managing money. These resources help simplify dozens of complex financial topics, from mortgages and health savings accounts to loan forgiveness and homeowner’s insurance.
Kentucky’s credit unions are also working with state leaders to improve financial literacy. Last year, the legislature passed a law requiring high school students to take a financial literacy course to graduate. The state has also created a Financial Literacy Empowerment Commission, which will help support educators who teach financial literacy courses. Credit unions throughout Kentucky have pledged to provide funding for this effort.
Credit unions can afford to invest in these sorts of community-building activities because they’re not-for-profit. They’re owned by their members, who obviously have a vested interest in the financial well-being of their communities. Consequently, their interest rates on loans and credit cards are generally lower than those at big banks. And they typically offer higher rates on savings.
In other words, credit unions value people, not profits.
These values make a difference. Seventy percent of Americans who use credit unions and community banks see them as a “partner” in managing their finances, according to a 2015 study from the financial services company Kasasa. That’s true for only about half of Americans who use large banks.
For too many Kentuckians, personal finance is a mystery. Credit unions are striving to change that state of affairs — and put thousands of dollars in consumers’ pockets in the process.
Debbie Pyle is President and CEO of Greater Kentucky Credit Union, which is headquartered in Lexington, Ky.