Do you need an emergency savings account?
Steve Owens, chief lending officer of Consumers Credit Union, talks about the snapshots and stories within our financial lives and how they play a part in lending. Communication is key when times become difficult, and having an emergency savings account can go a long way in stressful situations. Listen today to “Money, I’m Home!”
00:05 Lynne Jarman-Johnson: Money, I’m home! From Finance to Fitness. Hi, welcome in everyone. I’m Lynne Jarman-Johnson with Consumers Credit Union and joining us today is Steve Owens, our Chief Lending Officer here at Consumers Credit Union. Steve, thanks so much for being with us today.
00:18 Steve Owens: Hi Lynne, thanks for having me.
00:20 LJJ: Well, you know what? We decided to do this podcast because we think it’s really important; the sun is shining, it’s a beautiful day today but in Michigan, especially in southwest Michigan, there has been a ton of rain and a ton of flooding in the Grand Rapids market, along the Lakeshore, there’s erosion going on. When that starts to happen, it is impacting people’s lives, their homes, how they live. You’re the Chief Lending Officer. You give people their dream homes and yet, sometimes mother nature or other unforeseen circumstances happen in someone’s life; we call those emergencies. Do you see the impact on a day-to-day basis as the Chief Lending Officer?
01:11 SO: I do, yeah. It’s an important topic and one of the parts that I love about working in Consumers Credit Union is it’s a mission-driven organization, more so than any, it really truly is sincerely a mission-driven organization, more so than any organization I’ve worked at; and the mission is simple, it’s to improve the financial well-being of our membership. I really embrace the idea of financial counseling, helping our members position themselves for success.
01:48 SO: One thing that I love about the industry, about our company, our members win, we win, it’s that old cliché, but it’s so true. When we’re helping people out it truly is a win-win situation. So, you’re right, Lynne. We help finance the car you drive to work, we help finance the home you live in and sometimes, when life happens, it could literally be a rainy day that causes a flood or it could be a figurative rainy day; a death, a disruption in employment or any number of things, natural disaster. One of the things you can do to insulate yourself against things becoming completely unraveled is to have an emergency fund.
02:52 LJJ: Stress of finances are every day, until you make it that they’re not and that is through education, as you just talked about. When you say emergency fund, what does that mean and how should someone calculate what that should be in a savings account?
03:12 SO: That’s the most common question I get, and I think it’s unique to every person’s situation. I think there are some guides on how much you should borrow comfortably, how much in relation to your income. I embrace the idea of being what’s called an income or a cash flow lender so the amount you borrow should really be dictated by how much income you have and not necessarily the assets you have accumulated. For instance, if you have $100,000 a year household income, I like to see automobile loan to be no more, a high auto loan payment would be 10% of that income. A housing payment would be closer to 20% of that income and if you stay within those ratios, I think you’re going to find not only can you handle those payments but you’ll also be able to save for the future and build an emergency fund.
04:23 SO: Oftentimes it’s a ratio, that’s the easiest thing to go to. There’s a number of experts that’ll tell you statistically if you have three month’s worth of income in an emergency fund… I’ve heard both ways, I’ve heard three month’s worth of income, three month’s worth of expenses. [chuckle] Hopefully, the three month’s worth of income is a higher number for you but that would be ideal; if you can stockpile that, that’s a good war chest that when life comes by, you’re going to be able to weather the storm without potentially losing everything or having a huge, significant setback.
05:05 LJJ: I think you’ve mentioned how we at Consumers are mission-driven, I like to say we listen to stories and there’s a video that Just Getting By produced for us and it features a member of ours who was ride-sharing because she couldn’t afford a car and could not find anyone to lend her money but the conversation that took place and the steps that we helped to get her to be able to have a car, she’s in the catering business, a car is a must and how much money she has saved because she’s not ride-sharing has been… It’s just an incredible story and that’s the point, there’s stories behind every instance of financial setbacks that you listen to.
05:58 SO: Yeah, one thing that makes me think of Lynne, as the story moves through time and so does your financial story and oftentimes, we get caught up in a snapshot and people have, just people I interact with, they seem to have a pretty clear snapshot of their financial picture but of not a clear vision of their story and their trajectory. Sometimes you look at your snapshot and it’s high fives and everything looks great, but it’s really relative. Well, what was it like six months ago and what will it be six months from now and six years from now? And I always encourage people not to get caught up too much in that snapshot of what’s going on today but to think about their story and think about that timeline and think about what are the trends. Is your debt escalating? Is your credit card debt escalating or is it declining? Is your income increasing, decreasing? What are the trends and what are you doing about it?
07:15 LJJ: The other is age. It’s interesting to me to… I have kids that are at the age where credit cards are being offered 24/7, they’re new to the credit world. Still do not grasp, despite a lot of financial education at home, that concept of there’s good credit, there’s bad debt and how you can look at that. So, you’re talking about that snapshot, that snapshot and that story changes with where you are or what you’re doing.
07:49 SO: Yeah, we have members, you’d totally expect them to have escalating debt, like I said, if you didn’t own a home three years ago but you own one today, you have escalating debt. It’s not necessarily a bad thing but it’s about what it’s being used for. I like to believe that it’s our job to provide our members with some tools. I think we do a pretty good job of providing them with tools to buy the car they drive to work and own the home they live in, to manage their payments with our credit cards but I’d love to be a champion of how can I build that emergency fund with three months of expenses? What if three months of expenses for you is $10,000? I don’t have that sitting on my checking account today, I need a plan.
08:39 SO: So that’s where this snapshot versus a story, so how can I build that $10,000 savings? And you start doing some math and say “Well, I can do $500 a month, and in a year I’ll have $6,000 there so it’ll take me a year and a half or whatever to get to that $10,000 goal.” But you have to start. $500 a month sounds like a lot, but the reality is, it’s 100 bucks a week, 150 bucks a week, whatever but you pick a plan and you stick to it, you can turn to your credit union for the tools to do it.
09:15 SO: We’ve got the auto transfer tools in our online banking. You’ve got your paycheck coming right into your checking account here, we’ve got the tools to be able to set it up so you can peel $100 off there every paycheck, throw it in a special savings account, you can do it online all by yourself, and I would just encourage people to do it today, and start it at $25 and every January 1st, up it $5 or whatever. It’s all relative to your own financial situation but when you borrow money, it’s very contractual. There’s lots of disclosures, agreements and that kind of thing and I’m sure there’s stories of people, success stories of people that do it successfully and I’d love to hear them.
10:05 SO: I think our members sharing their stories of their success is, that’s always pretty fulfilling to me to hear. Well, give me your story, how did you build your emergency fund and how long did it take? And I want to hear the story. I don’t want to see the snapshot.
10:25 LJJ: How important is early communication, talking with your financial advisor who you respect at whatever office it might be at Consumers or just picking up the phone, how important is early communication when all of a sudden, the boat’s starting to tip?
10:45 SO: It is critical. From my perspective, it’s always beneficial. I hear oftentimes from borrowers, members, a level of uncertainty of whether or not it’s beneficial to them to openly communicate with their lender, be it us or a bank or whomever they’re borrowing the money from. If you’re being yourself, if you’re being genuine, if you’re being honest, in my experience, communication is always beneficial. We’re mission-driven, we’re here to improve the financial well-being of our members and when we lend money, we ask ourselves two questions; can you repay the loan and do you have the willingness to repay the loan?
11:42 SO: What communication signals to us is that you’re willing, you might not be able to right now but you’re willing. That’s a critical piece. If you’re not able to, we have things we can do to work with you so if you’re not able to repay it, let’s write the rest of that sir, let’s finish it out. So, it goes back to that snapshot versus story and if you’re communicating that you’re not able well, let’s work together to unwind this thing where you run into trouble or where we… That lack of communication creates uncertainty.
12:27 SO: If there’s no communication there, we don’t know if you’re willing, we just don’t know. It’s all unknown so we have to hedge our bets one way or the other. It just doesn’t go as well. We still certainly look, act in people’s best interests and the best interests of the membership but in my experience, I’ve been in this position for 10 years at Consumers and to be honest with you, I’m proud of how this organization does work with people at a time of need and in particular, if they’re not able to fulfill their obligation.
13:10 LJJ: I’ll tell you what Steve, I think you came up with a wonderful idea, that I am actually going to launch right now, which is we would love to hear your story of success. Have you started an emergency savings in your own home and we’d love to hear about it. Connect with us at consumerscu.org, we would love to hear your story and tell it. Steve Owens, thank you so much. Chief Lending Officer with Consumers Credit Union. We’re here to help you.
13:39 SO: Thanks, Lynne.
13:39 LJJ: I would love to say hey thank you Jake, thank you Anna, our producers today. Money, I’m home. From Finance to Fitness. This is Consumers Credit Union.