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The Effects of Member Income Levels on Credit Union Financial Performance

This report evaluates how member income levels affect a credit union’s financial performance and identifies strategies credit unions could employ to expand service to low-to-moderate income members and potential members.

  • William Kelly Center for Credit Union Research at University of Wisconsin-Madison

Executive Summary

For a credit union to increase its proportion of low-to-moderate income members, while maintaining and improving its financial performance, requires relatively minor, and optional, use of special programs for lower income households. It requires that the credit union incorporate thoroughly a number of staff attitudes, practices, and principles with regard to all of its members. Many of these attitudes and practices are familiar to credit unions and are often a part of many credit unions' culture. However, the approach necessary to take advantage of the opportunity requires greater emphasis and more consistent application of familiar principles, along with the adoption of less familiar ones. 

What is this research about?

This research evaluates how member income levels affect a credit union’s financial performance. It does this in two ways:

  • By evaluating the financial performance of three credit unions that had been identified in earlier research as following a conscious policy of expanding service to low and moderate income households.
  • By analyzing the financial performance of 75 credit unions for which data was available on member income distributions.

What are the credit union implications?

Many credit unions fear that if they expand their membership to raise the proportion of low-to-moderate income households, this would raise delinquencies, charge-offs, and operating expenses, and would reduce net income, at the expense of existing members. However, data analyzed in this project show that such concern is misplaced. Instead, the data indicate that expanding membership to raise the proportion of low-to-moderate income households is a good business proposition. Expanding membership to increase the proportion of low-to-moderate income households presents a credit union with strategic opportunity which can benefit its existing members, while bringing services to groups that previously had no access to credit unions.