Credit unions play a key role in helping the ‘underbanked’ to access credit for everyday necessities. According to the Association of British Credit Unions Limited (ABCUL), there are now 405 credit unions across England, Wales and Scotland, with more than 1 million users (a 170% increase in membership since 2007), equating to a total amount in savings of £762 million, and a total of £604 million out on loan. Several of these – 25 – now offer current accounts and growing number are offering mortgages, cash ISAs and insurance products.
But how do they benefit the young, especially those between 18-25, who may not yet have had the chance to build up many savings, but might be keen to get into the right habits of saving, building up assets and keeping debt down? Are there even any advantages to using a credit union at all? Well, of the total number of credit union members, over 121,000 are junior savers. So, there is clearly a strong base market for savings accounts amongst the young.
However, the main problem that credit unions face is the fact that many people only become aware of them when they get into difficulty – particularly regarding debt. When they are financially stable, they are more likely to use a current account or savings account with a high st bank, or building society, after all, they offer higher interest rates on savings accounts, and lower interest rates on loan repayments. But when the amount in question is lower than £3000, credit unions begin to come into their own – in fact, a credit union can lend as little as £50 to those who need it. Moreover, with an repayment rate which averages just under 13%, this undercuts high st and payday lenders, by almost 9% – so interest on an amount of £100, would be about £10 cheaper for those who used a credit union.
The only catch is that credit unions require anyone who borrows from them to already be a member, so that they have proved themselves to be a prudent saver over a period of time. However, this is set to change with new guidelines brought in by the UK government to increase credit union membership.
Are credit unions then, doing more to attract younger users? In today’s uncertain economic climate, young people are beginning to turn to credit unions more to pay off debts, including credit card, as reported recently by the North Wales Credit Union. There is little data regarding the amount of savings young people are willing to invest in a credit union rather than a conventional institution, such as a bank. But Young Scot Extra, an information site aimed at young Scots aged between 16-26, is working on the possibility of setting up an online credit union for young people aged up to 26 and credit unions are working with schools and colleges to identify ways they might better engage with younger members of a community. There is a long way to go, though, before, they reach the dizzying heights of existing credit unions in the republic of Ireland, where a historically poor population has built a loyal base of members. Here, young people are quick to see the benefits of becoming a member – especially with university loans, where students are increasingly turning to credit unions to help fund the costs of university.
But overall credit unions need to do more to attract younger customers, and provide an alternative to banks, not just by allowing access to credit to pay off debts, if they are to expand meaningfully.