National Credit Union Youth Week • April 20-26, 2008
Young Members = Revenue
Do young members help or hurt
your bottom line? Conventional wis-
dom says that young members cost
credit unions money, but conventional
wisdom doesn’t always know what it’s
talking about. The following statements
are all true:
A. In the short run, most members
under age 18 are an expense to
the credit union
B. As adults, most members now
under age 18 will add more in
revenue than they subtract in
expense.
C. As adults, some members now
under age 18 will contribute a
greater net revenue than their
age-mates who didn’t join until
after age 18.
D. Nobody knows quite why C is
true.
Few credit unions have challenged
conventional wisdom on the supposed
“unprofitability” of youth accounts.
Even the most ardent youth advocates
acknowledge that they believe youth
accounts generate more expense than
revenue. What motivates them is the
overriding belief that the benefits of
raising financially literate youth justify
program costs. They’re convinced that
young members eventually become
“profitable.” And they count on “con-
sumer inertia” to keep young members
from switching financial institutions
later.
But what if a credit union didn’t
have to lose money on its young mem-
bers? Then no credit union would
have an excuse not to have a robust
youth program. Here’s a statistical look
at the conventional wisdom of youth’s
“unprofitability:”
Marginal contribution
The 2007 edition of Savingteen in-
troduced the concept of Marginal Net
Revenue Contribution per Member
(MNRC/M). MNRC/M equals total loan
interest paid plus total fees paid minus
total interest and dividends earned (all
per member).
Some credit unions, such as the $1-
billion University of Wisconsin CU
(UWCU) in Madison, use the
MNRC/M in strategic planning. UWCU
management and board consider the
by Steve Rick and Philip Heckman
MNRC/M as a measure of the average With the help of two credit unions,
member’s effect on the credit union’s the $36-million Point Plus CU (Stevens
balance sheet. Groups of members Point, Wis.) and the $92-million Space
with a negative MNRC/M (the savers) Age FCU (Aurora, Colo.), we’ll show
provide funds for growth, while the how the Marginal Contributions per
MNRC/M for the entire membership Member (MC/M) can begin to shed
indicates the degree to which UWCU light on young members’ supposed
borrowers add to accumulated earn- unprofitability.
ings. At UWCU, the overall MNRC/M
is the annual gauge of the cooperative’s Unconventional
health, which directly benefits all of its Wisdom
members. Although the MC/M of Space Age
Although the MNRC/M can be a members now under the age of 18 is
useful tool for measuring annual
negative, it’s not only what I expect,
progress in overall profitability, to in-
clude fees in the calculation compro- but what I hope to see. We have a
mises its value as a tool for assessing strong emphasis on saving, and these
young members’ revenue contributions. results tell me it’s paying off. Our
That’s because many fees, such as NSF youth MC/Ms become more nega-
charges, are punitive. Presumably a tive as our young members approach
comprehensive youth program with an age 18. Their share balances are
educational component would produce growing as they develop sound
more-financially literate adult members saving habits.
who make better money management —John Faries, Space Age FCU
decisions. They would be more likely
to avoid punitive fees, thereby reduc-
ing total revenue. Mostly for that rea- Overall marginal
son, this article will use the following, contributions per
even-simpler, formula: member
Figure 1 shows the MC/M for all
Marginal Contribution credit unions by asset size for January
per Member (MC/M)
through September 2007. As you can
= Total Loan Interest see, for the most part MC/Ms rise
Paid per Member steadily as credit unions become larger
– Total Interest & (except for the $1 billion-plus credit
Dividends Earned unions). It’s tempting to conclude that
per Member the positive correlation between credit
Fig. 1
Marginal Contribution per Member
(Interest Paid Minus Dividends Earned)
$250
207
197 202
200
179 $182
162
150 145
127
110
101
100 87
67
50 $35
$0
$0- 0.5- 1-2 2-5 5-10 10-20 20-50 50- 100- 200- 500- $1,000 Overall
0.5 1.0 100 200 500 1,000 +
Asset Range (millions)
2008 SAVINGTEEN • CUNA CENTER FOR PERSONAL FINANCE | 7A
Fig. 2
Marginal Contribution per Member Overall Unconventional
Wisdom
$200 192.57
Space Age’s “core members” are
the ones we captured as youth.
$161.71 Figure 9 shows that the dividends
150 144.69 that Space Age’s adult borrowers in
$126.42 the 20-25 and 30-35 age groups
earned are significantly higher for
100 those who joined before they turned
18, compared to those who joined
after. They not only look to us for
50 loans, but they also make up the
core deposits that we lend out and,
ultimately, need to survive.
$0 —John Faries, Space Age FCU
Point Plus CU Point Plus CU’s Peers Space Age FCU Space Age FCU’s Peers

gages and vehicle loans.

union asset size and MC/M is due to unions, Space Age’s average member But by not probing deeper than this
economies of scale. But the MC/M makes an above–average contribution. gross measure of “profitability,” credit
does not include operational expenses, unions that dismiss the value of youth
so efficiencies are not a factor in this MC/M by current age programs do an injustice to the rev-
trend. Rather, as credit unions become and by age when enue contributions that youth make af-
larger, they tend to offer more sophisti- joined ter age 18. Figure 4, which compares
cated investment instruments that at- Comparing MC/Ms for youth and members by the age at which they
tract more member deposits that make adult members supports conventional joined the credit union, reveals that
possible larger, more profitable loans, wisdom. Clearly, young members as a those who became members as youth
and higher MC/Ms. group are a current drag on both credit do indeed make a positive contribution
Figure 2 shows how the overall unions’ bottom lines (Fig. 3). The fact as adults.
MC/Ms of our sample credit unions that youth make such a poor showing At first glance, Figure 4 also seems
compare. Point Plus’s average member compared to their elders is hardly sur- to reinforce the conventional wisdom
contributes less net revenue than the prising. After all, adults have signifi- that spending on youth doesn’t provide
average member of similar-size credit cantly larger deposit accounts and a sufficient return on investment. How-
unions. And compared to peer credit millions of dollars in profitable mort- ever, that conclusion ignores the fact
Fig. 3 Fig. 4
Marginal Contribution per Member Overall Marginal Contribution per Member Overall
by Current Age by Age When Joined
$250 $250
$218.16
$205.30
200 200

154.59
150 147.42 150

100 100

50 50
34.23
$27.00

-$5.60 -8.11 0
0

-$50 -$50
Point Plus CU Space Age FCU Point Plus CU Space Age FCU

Now <18 Now 18+ Joined <18 Joined 18+

8A | 2008 SAVINGTEEN • CUNA CENTER FOR PERSONAL FINANCE

 National Credit Union Youth Week • April 20-26, 2008

Fig. 5 Fig. 6 Fig. 7

Marginal Contribution per Marginal Contribution per Marginal Contribution per
Member (Adults 20-25) Member (Adults 25-30) Member (Adults 30-35)
by Age When Joined by Age When Joined by Age When Joined
$450 $450 $450 $432.37
$411.25
400 400 400

$351.70
350 350 350

300 300 300

250 250 250

206.68
200 200 200
$178.73 177.05

150 150 150

100 100 100

$78.18 73.41
60.92
$48.78
50 50 50 32.32
26.08

$0 $0 $0
Point Plus CU Space Age FCU Point Plus CU Space Age FCU Point Plus CU Space Age FCU

Joined <18 Joined 18+ Joined <18 Joined 18+ Joined <18 Joined 18+

that adults of all ages who joined after
age 18 include a wider, more financially
diverse, range of individuals. Conven-
tional wisdom begins to crumble when
we examine groups of adult members
in narrower age ranges.
Unconventional
Wisdom
To remain viable a credit union needs
continuing streams of core depositors
and quality borrowers. Space Age
relies heavily on indirect lending.
Many of these borrowers have a
loan and a minimum par balance
share account at the credit union, and
that’s it. This generates a marginal
contribution that’s much higher than
we get from our “core members”
alone. Although that’s nice to see, it’s
vital that we figure out how to get
them to move their deposits to us. In
the meantime, these indirect borrow-
ers provide the resources to offer the
products and services that attract and
retain youth, the core depositors who
view Space Age as their PFI [primary
financial institution].
—John Faries, Space Age FCU
MC/Ms of similar-age
adults who joined as
minors
Figures 5, 6, and 7 compare the
MC/Ms of adult members in three nar-
row age groups by whether they once
were youth members. Conventional
wisdom predicts that the adult contri-
butions of former youth members never
exceed that of their age-mates who
joined after age 18. And three of the six
comparisons shown in Figures 5, 6, and
7—where the green bars exceed the red
bars in each Space Age pair—support
this assumption.
But consider former Point Plus CU
youth members. They defy conventional
wisdom by out-performing their age-
mates in all three age groups (Figs. 5, 6
and 7)—where the red bars exceed the
green in each Point Plus pair. In other
words, MC/Ms of like adults show that
young members are a significant rev-
enue source for Point Plus CU, better
than their age-mates who don’t join un-
til later. As Point Plus CU’s experience
attests, youth can be worth pursuing
and serving.
Figures 8 and 9 go a step further by
displaying the income and expense fac-
tors that go into the Point Plus and
Space Age MC/Ms. Figure 8 shows that,
in all three age groups, adults who
joined Point Plus CU as youth (red
bars) are better borrowers than their
Point Plus peers who don’t join until
later (green). And Figure 9 shows that
nearly all adults who joined either
credit union as youth are better savers
than their fellow members of the same
age. The challenge is to identify the
factors that cause these effects and learn
how to influence them.
What MC/Ms suggest
Preliminary marginal contribution
analysis leads to the following conclusions:
1. Exploring youth “profitability” further
is desirable. First of all, MC/M compar-
isons among more finely sliced member
subgroups over time will help zero in
on what specific programs are most
effective in raising more “profitable”
members. For example, how would
graduation from a youth educational
program affect the MC/Ms of adults of
the same age?
Second, this preliminary MC/M analy-
sis reveals nothing about what might be
influencing adult financial behavior. For
example, did the adult members who
joined the credit union as youth do so
because their parents have influential
characteristics in common?
Finally, it’s important to make a distinc-
tion between individual and group
MC/Ms. A positive and growing overall
MC/M is the sign of a healthy credit

2008 SAVINGTEEN • CUNA CENTER FOR PERSONAL FINANCE | 9A

 Fig. 8
Interest Adult Borrowers Paid Unconventional
by Age When Joined Wisdom
$450 $440 Everyone benefits from youth educa-
426
400
tion: Dividends paid to members in-
355 crease and so does interest earned on
350 loans. We plan to continue our youth
300 financial education efforts through our
250
high school branch because we be-
203
214 lieve that education will produce a
200 181 higher marginal contribution per mem-
150 ber between the ages of 20 to 35.
100 $84
We also plan to implement a staff
76
63 53 pay-for-performance plan, and will use
50 33 47
marginal contribution analysis to help
$0
Point Plus CU Space Age FCU Point Plus CU Space Age FCU Point Plus CU Space Age FCU
us determine its effectiveness.
Ages 20-25 Ages 25-30 Ages 30-35 —Gail G. Sawyer, Point Plus CU
Joined <18 Joined 18+
that drive growth. A youth program
Fig. 9
that invites grandparents to match
Dividends Adult Borrowers Earned young savers’ efforts could tap a poten-
by Age When Joined tially deep well of lower-cost funds.
3. Increasing services to youth can in-
$30
Note change in y-axis scale crease the amount of business they do as
compared to Figure 8
24.82
adults. Space Age CU’s data reveal the
25 promising trend that adults who joined
as youth use more credit union servic-
20 es. Among Space Age adults aged 20
to 25, average service use was the
15 14.31 14.37 same (2.0). But average Space Age
service use was 2.4 to 2.0 in favor of
10 adults aged 25 to 30 who joined as
$6.26
6.91 7.25 $7.20 youth, and 2.3 to 2.1 in favor of
5 4.43 4.12 adults aged 30 to 35 who joined as
2.65 3.18 youth.* Credit unions that recognize
1.88
$0
the inertia of consumers to change
Point Plus CU Space Age FCU Point Plus CU Space Age FCU Point Plus CU Space Age FCU providers will use their youth pro-
Ages 20-25 Ages 25-30 Ages 30-35 grams to lock members in for life.
Joined <18 Joined 18+ All in all, these early MC/M data
undermine the conventional wisdom
that young members are a drag on a
union. A credit union with a negative off now. One of the reasons that cur-
credit union’s performance. Let’s con-
overall MC/M must rely on less-profitable rent youth MC/Ms are lower than
tinue to statistically question whether
investment income and less-popular fee adults’ as a group is that youth often
long-standing assumptions about the
income to stay in business. However, an don’t have access to the number one
lack of a return on investment in
individual member with a negative credit union money maker—credit
youth are really true. ■
MC/M based on thousands of dollars in cards. Finding a low-risk way of ex-
low-interest savings and checking ac- tending credit to qualified young * Corresponding service-use-per-member fig-
counts is quite valuable. Such a saver, members under parental supervision ures were not available from Point Plus CU.
who values liquidity over earnings, helps will automatically improve youth
lower a credit union’s cost of funds. MC/Ms by raising interest income. An Steve Rick (srick@cuna.coop) is a CUNA
2. Expanding service to youth can pay example of the kind of opportunity to economist and University of Wisconsin CU
look for might be with the 36% of board member. Pat Wesenberg
school districts that the School Nutri- (Pat@pointpluscu.com) is CEO of Point
Unconventional Plus CU and a CUNA board member. Gail
Wisdom tion Association reports accept credit
and debit payments in their cafeterias. Sawyer (gail@pointpluscu.com) is vice
Our young members are a significant president of operations for Point Plus CU,
On the other side of the balance and John Faries (jfaries@spaceagefcu.org) is
source of revenue. We need to serve sheet, college saving funds, for example, vice president of accounting & marketing
the youth market as a means of survival. which are relatively cheap to administer for Space Age FCU. Philip Heckman
—Pat Wesenberg, Point Plus CU because they have few transactions, are (pheckman@cuna.coop) is CUNA’s director
a desirable way of building the assets of youth and young adult programs.

10A | 2008 SAVINGTEEN • CUNA CENTER FOR PERSONAL FINANCE