Financial Literacy as Moneymaker? It Is for This Bank

In the years following the subprime real estate meltdown, Brockton, Mass., earned the distinction of having the most foreclosures of any city in the Bay State.

One of the contributing factors was that some borrowers were steered into high-cost, subprime loans when they might have qualified for more affordable options.

Brockton is a working-class city with a high minority population, and some who received loans just weren't financially savvy enough to know that they were being scammed, said Maureen Wilkinson, the vice president of community education and the Community Reinvestment Act officer at HarborOne Bank in Brockton. Many were immigrants — including Latinos and Cape Verdeans — who were victimized by members of their own ethnic groups, she added.

"All the documents were in English, so they didn't necessarily understand what they were signing," Wilkinson said. "It's sad to know that these folks, if they had just been armed with a command of the language and some understanding of the basics of finance, they may have been able to avoid the losses they sustained."

For HarborOne — a former credit union that converted to a mutually owned cooperative bank in 2013 — the foreclosure crisis in its hometown became a "call to action" to step up its financial literacy efforts in the predominantly low- and moderate-income communities it serves, according to Wilkinson.

In 2007, it opened a multicultural banking center in Brockton, where it provides free classes, including English as a second language, computer literacy, the basics of personal finance and home ownership, and citizenship test preparation. It also teamed with nonprofits such as NeighborWorks of Southern Massachusetts to help families who had already bought homes and were struggling to make payments avoid foreclosure.

Three years later, HarborOne opened a second center in nearby Mansfield, to provide similar services as well as business training advice to existing and budding small-business owners.

The community's response to these centers — which are now referred to as "HarborOne U" — has exceeded all expectations. In the eight years since the first center opened, more than 13,000 individuals have enrolled in one or more programs offered by the bank or its nonprofit partners.

The $2.1 billion-asset HarborOne also has benefited in unexpected ways. Thousands of attendees in its programs went on to open accounts or take out loans with HarborOne, and that new business now generates roughly $2.5 million in annual revenue for the bank. That's not counting new business it received from customers who are simply grateful to HarborOne for making such a substantial commitment to financial education.

"We know that there are people in our communities who have never taken our classes who are banking with us because of our outreach," Wilkinson said. "They have told us, 'We are giving you our business because you give back to the community.' "

Most banks provide some financial education, but the intent is primarily to get CRA credit, not bring in new business. HarborOne is among the exceptions proving that financial literacy efforts can benefit banks' bottom lines.

But it takes commitment, along with a well-designed and well-executed initiative.

The annual budget for the "Harbor-One U" program is $500,000. The bank converted extra space in two former headquarters buildings into community meeting rooms for classes. Each building also houses a branch.

Wilkinson said that since 2007, nearly 4,000 individuals who went through training at the Brockton campus later opened accounts, resulting in $11 million of new deposits and $40 million of new loans. Nearly 1,200 attendees at the Mansfield campus have opened accounts since 2010, resulting in $14 million in new deposits and $23 million in new loans.

Some of the new customers came from the ranks of the unbanked, others moved their accounts from elsewhere. Either way, Wilkinson said, they chose HarborOne largely because they felt a sense of loyalty to the bank for helping them make better financial choices.

"We are not selling anything to you," Wilkinson said. "We're giving you information that's useful to you to help you budget, or help you run your business or buy your first home, or help you pay for your child's college, without making you feel obligated to buy one of our products."

First Horizon National Corp., the parent of First Tennessee Bank, also has been pleasantly surprised by the response to its outreach efforts. The $26 billion-asset Memphis company has partnered with the nonprofit Operation Hope to set up financial education centers in three of its branches, and through the first nine months of 2015 the centers served 1,623 people — more than twice what it had projected. Some attendees are content with the three-hour workshops on money management, but more than 200 have made a deeper commitment to enrolling in 12- to 18-month classes designed to help those with poor credit histories boost their credit scores to at least 700.

Tammy Locascio, a senior vice president and retail delivery manager at First Horizon, said that the company has been encouraged enough by the demand that it has committed to opening another 12 to 15 of these so-called Hope Inside centers at its branches over the next couple of years.

And while the partnership with Operation Hope is still too new to have generated meaningful new account or loan activity for the bank, Locascio believes it will do so eventually. Roughly half of those enrolled in the 700-credit-score program are already First Horizon customers, and Locascio believes many will become better, more profitable customers once they graduate. Participants in that program have an average credit score of 581.

"They may have a checking account with us, but we can't do a car loan for them; and that's a conversation bankers don't like to have," Locascio said. "Now we can say, 'The answer is "no" today, but we have a program that you can go to so we can say "yes" to you in the future.' A 700 credit score just opens so many more doors."

HarborOne's Wilkinson said she believes commitment is the key to making financial education efforts pay off at her bank. Many banks have contacted her for advice about developing financial inclusion programs but have been unwilling to commit the time and resources it takes to make such programs successful, she said. HarborOne offers roughly a dozen classes a month at its two locations and has developed close relationships with several nonprofits that work with the bank to design curricula and provide instruction. Some of its classes, like English as a second language, can run as long as 10 weeks.

"Some banks, they want to add this to the marketing person's long list of responsibilities," Wilkinson said. "They might be doing two seminars a year and expect to get the same results we are. There's no way they are going to do that. There are four of us on staff and we are immersed in this program. We have 10 to 12 classes a month. It's not a brown-bag lunch seminar that we do once every six months."

It's also important to measure the results. HarborOne uses a marketing customer information file to track the progress of participants in its programs. Wilkinson knows, for example, how quickly people open accounts after they have completed a program and how many products and services they have with the bank. (She also knows how many people who go through its programs do not open accounts.)

Finally, Wilkinson said, banks that see financial education as a way to attract new customers should avoid the hard sell. Certainly HarborOne offers products that relate to the classes it offers, such as home loans, second-chance checking accounts or loans to help immigrants pay for citizenship tests. But, "we have classes on reverse mortgages and student loans, and we don't offer either of those products," Wilkinson said.

The point is to focus on helping people improve their lives, not on getting their business, she said. "We want to develop a relationship before we ever handle their money."