by Phil Seely (Originally Published on CUInsight)
While the inflation rate declined in 2022 from 9.1% in June to 6.5% in December, it still remains more than triple the Fed’s goal of 2% (Trading Economics). Many Americans are still feeling the impact of higher prices and greater interest rate debt from bank credit cards.
Low-income households are the hardest hit by these cost-of-living increases. For members who are credit challenged or struggling to stay ahead of debt, a debit card is a convenient solution to help them take greater control of their funds and meet daily budget goals while addressing debt.
Right now, the top payment method for low-income households is still cash. High banking fees cut into already tight budgets, making low-income earners wary of financial institutions. Indeed, this demographic often carries the greatest burden in banking fees. A 2021 study by Financial Health Network showed that “Financially Vulnerable Households” spend 13% of their income on fees and interest, which is high compared to 5% for those who are “Financially Coping” and 1% for the “Financially Healthy.” Fee concerns and difficulty obtaining a credit card puts this group at a disadvantage for shopping online and making purchases where cash my not be accepted. These challenges can prevent people from getting ahead of debt and from building their savings.
A recent study by Kellogg School of Management highlighted how debit cards are an effective tool for addressing these challenges. Research focused on the beneficiaries of a conditional cash-transfer program offered by the Mexican government. Study participants who regularly received their money through direct deposit were given debit cards with positive results. Shortly after receiving the cards, the number of participants with account savings rose from 13% to 29% and again to 87% after two years. These new savings were attributed to the convenience of the debit cards along with increased trust as cardholders could easily check the fees associated with their accounts.
Helping Members Thrive
For members concerned about their budgets as the cost of living continues to rise, debit cards present a helpful solution. Debit cards can be used for contactless and online purchases without the worry of interest charges. They empower members not only to stay on budget, but also help them enjoy the benefits of having deeper knowledge and control of their accounts.
Helping members overcome and thrive amid economic challenges benefits them as well as credit unions. A strong, well-rounded, debit program is an important way credit unions can help members strengthen their financial health and serve the underserved.
At Envisant, our team of experts is ready to help you develop a debit program that meets the ever-changing needs of members looking to thrive in an unpredictable economy. To learn more about the Envisant difference and get started, contact us at 1-800-942-7124.