Preparing for Lifelong Knowledge

Community banks develop financial literacy programs as long-term civic and business investments

By Carol Patton

Back in 2008, when subprime residential mortgages were making daily headlines, Joshua M. Guttau believed that the housing crisis was one symptom of an even bigger national problem: financial illiteracy.

“In a perfect world, financial literacy is the responsibility of parents as part of raising their children,” says Guttau, president and CFO at Treynor State Bank in Treynor, Iowa. “Most parents today, sadly, don’t even know how to coach or educate their kids on finances because they struggle themselves.”

Across the country, community banks are partnering with schools, charities and other organizations to help people of all ages better understand the world of finance and make responsible financial decisions. Although a long-term goal, the payoff can be huge for everyone involved. The better financial decisions people make, the less risk of foreclosures, bankruptcies, loan defaults, bounced checks and maxed out credit cards that can’t be paid off.

In the end, that greater financial knowledge translates to more prosperous customers and a bigger long-term bottom line opportunity for community banks. ICBA, its state community banking association affiliates and community banks nationwide are celebrating April as both Community Banking Month and Financial Literacy Month. ICBA and community banks want all consumers to recognize the importance of financial literacy and what it means to be a knowledgeable and empowered consumer.

“Community banks are relationship lenders that want their customers to understand their finances so they can be smart consumers who are in control of their financial well-being,” says Bill Loving, ICBA chairman and president and CEO of Pendleton Community Bank in Franklin, W.Va.

ICBA has an ongoing commitment to promoting financial literacy, encouraging its nearly 5,000 member community banks to provide programs within their communities, as well as forging government, nonprofit and private-sector partnerships, such as with the Jump$tart Coalition, America Saves Week and the FDIC Money Smart program.

“If our customers succeed, our community banks succeed—it’s a win-win,” Loving says. “Taking care of our customers and community is ingrained in the way community banks conduct their business.”

Preparing the next generation

As a result, community banks are developing or involved in homegrown financial literacy programs with nonprofit groups, schools and customers all across the country. A good example is the state of Iowa, which recently mandated that all public school districts teach financial literacy at almost every grade level, Guttau says. He hopes that this generation becomes more financially savvy and eager to know more about and use sophisticated banking concepts.

Until then, his $260 million-asset Treynor State Bank will continue offering financial literacy courses through the bank’s TS Bank Institute, a foundation established in 2009 that created and now markets a grade school through high school financial literacy program throughout the state. As part of the program, students operate a bank branch once a week at a local elementary school. During its first year, students collectively deposited about $20,000 in saving accounts. But last year, the deposits made declined to roughly $16,000.

Eight other local schools recently have signed on to operate Treynor State Bank’s in-school branch program, and even more are likely to follow suit. “They would pay our institute to deliver it to schools in their footprint,” he says. (The bank charges schools a fee to operate its in-school programs: The fee ranges between $25 and $100 per student, depending on the scope of the program developed and school’s population, Guttau says.)

What’s the problem?

One of the reasons why people are financially illiterate may be technology. Those who use online banking and ATMs simply check their balance online without ever bothering to balance their checkbook, says Deborah Willms, trust officer at Ackley State Bank in Ackley, Iowa.

Willms recalls an old joke, believing its message may apply more today than it did in the past: “How do you know if you have any money in your account?”

The punch line: “If you still have checks left.”

“I don’t even know if young adults are knowledgeable [about] what affects their credit score and how important it is in all aspects of their life,” she says. “So it’s very important for community banks to help the public as much as we can.”

With $153 million in assets, Ackley State Bank has been teaching financial literacy for almost 20 years. Besides sponsoring community financial workshops and speaking at local high schools, the bank also created the Good Cents Kids Club, which rewards children with fun but inexpensive prizes—like coloring books or dollar-shaped pencils—every time they deposit $5 in their savings account. Likewise, it sponsors a high school student board that meets monthly at the bank to discuss various banking topics, from how to secure a loan and budgeting to maintaining a checking account.

In this still uncertain and, in many places, struggling economy, Willms says, it’s important for community banks to be proactive in helping their customers become more knowledgeable. “Banks don’t want their customers to overdraw an account or default on a loan,” she says.

Unfortunately, especially in the areas that were hit the hardest economically by the real estate financial crisis, some people may not always be willing to see or accept responsibility for the poor financial decisions they made. “It was glaringly apparent that people knew better than to max out their credit cards to buy a house to flip, but they did it anyway,” says Hugh Dailey, president at Community Bank & Trust of Florida in Ocala, Fla. “We were reminded that a lot of folks in Florida had too much financial leverage, ended up upside down on their home, might have had too much credit card debt and not have saved enough for a rainy day.”

For these reasons, Community Bank & Trust of Florida’s financial literacy efforts throughout its marketplace are viewed as a long-term business investment. Dailey says people may appreciate a community bank teaching them how to balance a checkbook and return to the same bank for a mortgage or car loan. Moreover, he adds, it can be difficult to build, develop and maintain successful customer relationships with people who aren’t sufficiently educated about the beneficial financial tools and services available to them.

About five years ago, Community Bank & Trust of Florida built an online community program called Bilingual Money Smart Program that teaches the fundamentals of good money management. The 15-year-old, $560 million-asset community bank also donated more than 3,000 financial brochures to the United Way to distribute to its member agencies, which then hand them out to their clients. The bank’s employees also work with Junior Achievement, the University of Florida’s local extension service, and retirement homes to teach finance classes on topics like budgeting or identity theft.

“This is a long-term commitment for our bank,” Dailey says. “It’s not something that will go away. There will always be a need for financial literacy.” endmark

Carol Patton is a writer in Las Vegas.