September 17, 2025 • 42 mins
You might know it as the dismal science, but a conversation with Bill Handel, Chief Economist of Raddon, a Fiserv company, is anything but dismal. It in fact is an enlightening romp through the complexities and confusions of today’s global economy.
In the show Handel makes a prediction about the future of interest rates - and, no, don’t expect an imminent return of 4% 30 year fixed rate mortgages.
He also talks about how young adults are adjusting their financial habits to navigate today’s economy.
Importantly, too, Handel explains what is going on in the White House’s attempt to reset the global economy - and he indicates that the present economy is something of an artifact of the aftermath of World War II so there are reasons to think a reset is in order.
But how is a credit union CEO supposed to navigate in a global economy that is filled with uncertainties? Handel’s advice is to create plans that feature built in flexibility - because, really, you don’t know where interest rates will be a year from now. Staying flexible will be key to succeeding, he says.
Handel also says that the operating margins of credit unions have to improve. Period. He tells why in the show.
Dismal science? Not in this show. Here, economics becomes an exciting tool for navigating what’s coming at us.
Listen up
Listen up.
Like what you are hearing? Find out how you can help sponsor this podcast here. Very affordable sponsorship packages are available. Email rjmcgarvey@gmail.com
And like this podcast on whatever service you use to stream it. That matters.
Find out more about CU2.0 and the digital transformation of credit unions here. It's a journey every credit union needs to take. Pronto
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_02 (00:00):
Welcome to
SPEAKER_00 (00:06):
the CU2.0 podcast.
(00:28):
And now, the CU2.0 podcast withRobert McGarvey.
SPEAKER_02 (00:35):
You might know it as the dismal science, but a
conversation with Bill Handel,chief economist of Radden, a
Fiserv company, is anything butdismal.
In fact, it's an enlighteningromp through the complexities
and confusions of today's globaleconomy.
In the show, Handel makes aprediction about the future of
(00:55):
interest rates.
That's a question not everycredit union executive's mind.
And nope, don't expect animminent return of 3% or 4% in
30-year fixed-rate mortgages.
Don't expect it.
Handel also talks about howyoung adults are adjusting their
financial habits to navigatetoday's economy.
Got to understand that in thecredit union business.
(01:18):
Importantly, too, Handelexplains what is going on in the
White House's attempt to resetthe global economy.
And he indicates that thepresent economy is something of
an artifact of the aftermath ofWorld War II.
That's 80 years ago.
So there are reasons to think areset just might be in order.
But how is a credit union CEOsupposed to navigate in a global
(01:39):
economy that is filled withuncertainties?
Ours is.
Handel has advice about that,and his core advice is create
plans that feature built-inflexibility.
Because really, you don't knowwhere interest rates will be a
year from now.
You don't know a lot of thingsabout the economic climate a
year from now.
Accept that and know thatstaying flexible will be key to
(02:02):
succeeding, he says.
Handel also says that theoperating margins of credit
unions have to improve, period.
Period.
He tells why in the show.
Dismal science?
Not in this show.
Here, economics becomes anexciting tool for navigating
what's coming at us, and it'scoming now.
Listen up.
(02:23):
So we're going to talk aboutsomething that's confusing the
heck out of me, which is whereinterest rates are going.
Yeah.
For a year now, I've beenhearing, oh, I'll delay buying a
house because the interest rateswill go down.
Well, they're not.
So what's going on here?
SPEAKER_01 (02:44):
Yeah, no, it's a great question.
And it's a lot of interrelatedfactors that are having an
influence here.
The first thing to understand isabout interest rates is that
they have been abnormally lowfor a long period of time.
really since the early 2000s,kind of a reaction and a
response to first a series ofevents.
(03:09):
You had the dot-com bust, thenyou had 9-11, then you had the
great financial crisis, then youhad COVID, and you had a lot of
other factors.
All those things havecontributed to pushing rates to,
by historical sense, veryartificially low levels.
And those are what we've becomeused to having, but they're not
(03:33):
actually normal, the normallevel at which rates should be.
So I think there's thatlong-term issue there.
you know, the long-term view ofwhere interest rates should be
that is influencing things.
So right now, everybody'ssaying, well, rates need to be
lower.
But having said that, I thinkthere's probably a better than
(03:55):
99, 95% chance that the Fed willlower rates at their next
meeting in September.
That's pretty high.
I think they tell us whatquarter point.
Probably quarter point would be,is what they would probably do.
If they went more than a quarterpoint, which probably would make
the administration happy, but ifthey went more than a quarter
(04:16):
point, you'd probably see anadverse, actually an adverse
reaction by the market ingeneral.
And you might see interest ratesactually move, longer rates move
in a direction that they don'tintend either.
The interesting thing is thatthe Fed since September of last
year has dropped the Fed fundsrate by 100 points, right?
(04:39):
They've dropped it by 4% acrossthree cuts.
And yet in that same period,short-term or medium-term and
long-term rates have both goneup.
So the two-year treasury andthat same span is up by about 20
basis points, and the 10-yeartreasury is up by about 70
points.
So what you're actuallybeginning to see is the yield
(05:01):
curve take on a much more normalshape which is you know what
it's been for a long period oftime it's inverted where short
rates have been higher thelonger rates now it's going it's
beginning to flip but it's stillnot there yet very shortest
right like the you know the fedfunds or the one month is high
then it goes down you know atthe two to three year but then
(05:23):
goes continues to go back up umi think what you'll begin to see
happen is that the fed willslowly drop rates But that will
affect the short-term.
Longer-term rates are likely toremain at higher levels.
They're not going to move inlockstep as the Fed cuts rates,
short-term rates.
SPEAKER_02 (05:42):
My sense, and I don't purport to be an expert in
this, is that there's not aconsensus among economists about
the impact tariffs will have onA, inflation, and B, rates.
Am I right about that?
SPEAKER_01 (05:58):
Yeah.
That's absolutely true.
In March and April, especiallyApril when the tariffs were,
what did they call it?
Liberation Day, I can't rememberwhat the term was.
I
SPEAKER_02 (06:07):
remember saying, I'm no economist, obviously, all my
heavens, inflation is on us.
And a lot of economists weresaying, yeah, you're right,
you're right.
And now it's a much more mixedbag.
SPEAKER_01 (06:20):
Yeah, it's a much more mixed bag.
And there's a couple of factors.
Number one is that Businesseshave absorbed some level of the
cost as opposed to passing it onsimply because of the impact on
demand.
That's number one.
But the bigger issue is that theactual level of tariffs has not
(06:41):
been nearly as large as what thefear was.
You know, there was, you know,you're talking, at points you
were talking about very, veryhigh levels of tariffs, but
really because of negotiationsand things that have happened,
it's actually been much lowerlevels.
And there's been deferments,like we just saw the deferment
with China again, right, interms of the tariff.
(07:02):
I
SPEAKER_02 (07:02):
think the tariff with the EU is 15% on most
items, which is, to me, that's abearable number.
SPEAKER_01 (07:09):
I think that's probably what we ought to count
on is like 10%, 15% would beprobably where we're going to
end up with for most of theworld.
I think that's actually what Ithink the administration would
be happy with.
And honestly, I don't know ifyou're going to see it come down
(07:30):
further.
It's possible, but I don't thinkso.
And the reason I don't think sois because that's generating
actual real revenue for theTreasury.
And the Treasury, at this point,is not going to be very happy to
give up any source of revenuethat it can generate.
Now, again, it's not huge.
It's billions of dollars, which,you know, when we talk about$37
(07:51):
trillion of total debt, that'snot a big number.
But everything is out for theTreasury.
SPEAKER_02 (07:57):
So I think...
The Secretary is saying thatmoney will be used to pay down
debt.
SPEAKER_01 (08:03):
Right.
And it will be.
It's just not that.
It's not hugely impactful.
I hear
SPEAKER_02 (08:08):
you.
$37 trillion.
Minus$300 million or$3 billioneven is a big deal.
Now, I'm a credit unionexecutive.
Imagine, what am I supposed tomake of this situation?
People are wanting lowerinterest rates.
(08:29):
We have the uncertainty of thetariffs.
Am I supposed to just hide undermy desk for six months?
I'd be tempted to.
SPEAKER_01 (08:38):
Yeah, I don't think the tariffs are, I honestly
don't think tariffs were ever asbig of an issue as some people
painted to me.
I don't think they really willbe.
I don't think the tariffs aresomething that is hugely going
to be impactful.
My sense of it, and this is justmy personal opinion, my sense of
(09:00):
it is that it was more of anegotiating tactic on the part
of the administration as opposedto, with the intent of of
eliminating some of the tariffsthat happened to be on U.S.
goods.
There has been truly tradeimbalance for about 80 years,
really since the end of WorldWar II.
And it happened for historicaland probably appropriate
(09:23):
reasons.
Following World War II, theUnited States stood strong.
We hadn't been impacted by thewar in terms of damage to our
economy or damage to our citiesor anything.
And the rest of Europe had.
And so in order to help Europerebuild, we merely allowed them
to impose tariffs, prettysubstantial tariffs on our
(09:48):
goods, and we didn't imposeanything on theirs.
And so that made that easy forthem to export to us and
difficult for us to export tothem, but that helped them
rebuild their economies.
And that's really the way it'sbeen since the end of World War
II.
So tariffs, it's been animbalance.
playing field as far asinternational trade goes.
That was really initiallytargeted for Western Europe as a
(10:13):
way to rebuild Western Europeand to withstand against the
Soviet Union.
That's the whole playbook thatwas there.
Now things are entirelydifferent.
The rest of the world has takenadvantage, especially China, of
a very imbalanced trade policy.
I think that's what's trying tobe corrected here.
So it's really a negotiationthat's happening.
That's why I don't think tariffsare nearly as big of an issue as
(10:35):
some people were painting themout to be, because I think it
was really a way to negotiate toa little bit more level of a
playing field overall.
The bigger issue, I think, forexecutives is the fact is that
with 15 to 20 years of lowrates, we've built in an
expectation on the part of theconsumer in terms of where
interest rates should be,particularly in the real estate
(10:56):
world.
Mortgage rates at 3%, actuallyless than 3%, 2% in some cases
for many people, it's notnatural.
It's not really where ratesshould be, but it's where they
were.
And so what we've basically doneis locked up the real estate
market because with rates thatlow and that many people sitting
(11:20):
at extraordinarily low rates, somany people can't even afford to
buy that next house.
Because if that meant that theyhad to give up their 2% or 2.5%
mortgage, and take on anothermortgage at 7%, 6.5%, 7%,
whatever they would be able toget, they couldn't afford the
payment.
So that reduces the supply ofavailable housing that's out
(11:44):
there.
And that, in combination withhigher rates, makes home
affordability almost impossiblefor younger millennials or Gen
Zs who are out there trying tobuy.
So the lockup of the real estatemarket is probably the most
pernicious impact the ratepolicy that went back to the
last 20 years.
(12:05):
Because with very low rates thatwe experienced for 20 years, we
really bid up the price of realestate because people could
afford it when rates wereextraordinarily low.
They could more afford it whenrates were extraordinarily low.
And now that rates have goneback up and house prices are at
least not yet nationally comingdown to any substantial degree,
(12:25):
housing becomes extraordinarilyunaffordable.
So I think that's the firstthing that has to get solved.
And it is slowly getting solved.
People are beginning to loosenup a little bit and be willing
to recognize that they'reprobably gonna have to give up
that two and a half to 3%mortgage in order to get that
bigger house because theirfamily's wrong.
(12:47):
And so I think you're beginningto see that loosen up probably
in conjunction with astabilization or even in some
markets, a slight decline interms of real estate values.
So that market is slowlycorrecting.
Still, I think for creditunions, the big growth
opportunity still will be in thehome equity lending because more
people were probably going tochoose to add on to the house or
(13:09):
fix up their house as opposed,you know, keep that mortgage at
two and a half, 3% as opposed tosimply selling and taking out a
new mortgage to get betterplace.
So home equity lending willprobably be a primary lending
tool, but I think you stillshould keep an eye on that first
mortgage as an opportunity.
SPEAKER_02 (13:27):
Now, what kind of interest rates on the home
equity loans?
SPEAKER_01 (13:31):
You know, they're typically going to be coming in
at five and a half, six percent,somewhere in that range, you
know, depending on whether it'sa line or a loan.
If it's a line, it will be tiedto prime.
If it's a loan, it will be afixed rate and probably in that
same five and a half, sixpercent.
Maybe, you know, someinstitutions lower, some
institutions a little bithigher.
But, you know, the advantage forthe member there is that they're
(13:51):
not they're not financing entireproperty.
They're only financing property.
you know, that, that amountthat's
SPEAKER_02 (13:57):
50 grand for a new kitchen or something like
SPEAKER_01 (14:01):
that.
Right.
SPEAKER_02 (14:02):
Nonetheless, psychologically, they're
accepting five and a half or 6%interest.
I remember getting a mortgage in2004 at 6.75%.
And I was pretty happy with thatrate.
It wasn't a great rate, but itwasn't an awful rate.
Yeah.
And so when I hear peoplewhining about 6%, I think it
doesn't sound that bad to me.
(14:22):
And you're telling mehistorically it's actually not
bad at all.
SPEAKER_01 (14:26):
No.
No.
Where mortgage rates are todayis really low probably.
moderate to low by historicalstandards.
If you go back, if you look atsome of the data sets that have
been tracked, they don't go backinto deep, deep past, but they
can go back into the 1970s,1980s.
And even with the recent run-upin terms of mortgage rates,
(14:49):
we're still very low byhistorical norms.
I remember the 1980s wheremortgages were coming in at 18%.
SPEAKER_02 (14:58):
Right.
I have a relative who reminds methat he paid, I think, 14% in
1980.
And he was happy.
SPEAKER_01 (15:05):
Yeah.
So I think it's a combination ofa change in expectations that
will happen slowly over time.
Plus the lessening, and even insome markets, the reduction in
home, the lessening of the rateof increase or even actual
reduction in terms of homevalues in certain markets.
We're already seeing that inparts of Texas or Florida,
(15:26):
Tennessee, Arizona.
We're seeing that already happento a certain extent.
It's not a massive increase.
reduction in price that happenedin 2008 because that was a very
different type of market thanwhat we're in today.
But you're seeing at leastsoftening and maybe moderate,
you know, slight declines interms of home values.
(15:47):
So that, you know, if thathappens and then people change
their mind a little bit about,you know, mortgage rates and
kind of, you know, settle intothe quote new norm, I think
you'll see the real estatemarkets begin to open up a
little bit more.
SPEAKER_02 (16:03):
In Phoenix, where I live, projects that had been
conceived of as condominiumshave been switched to rental
properties before they'recompleted.
Is that anomalous?
Is that unique to Phoenix, or isthat a national trend?
SPEAKER_01 (16:18):
You're seeing that.
It depends upon.
It's a market-by-market trendthat you'll see.
So it depends upon what'shappening.
So in many markets, and I'm notsure if Phoenix were classifying
us wrong, but in so manymarkets, what happened was the
COVID impact.
The COVID impact was everybody'sworking remote and all of a
sudden they decide that, youknow, I want to be able to live
(16:42):
in different places.
And Phoenix is a nice place tolive or Nashville is a nice
place to live or, you know,markets in Austin, for example,
is a nice place to live.
And what we saw was a lot ofhome, a lot of buying activity
happened right as COVID was, youknow, impacting the economy.
And so then what happened was alot of buildings started
(17:04):
happening as well.
When there was a lot of demandfor properties in some of those
markets where people thoughtwere more desirable, because of
warm weather, whatever ithappens to be.
There was a lot more demand andso therefore there was a lot
more building.
And so in some cases there wasoverbuilding that happened
particularly in a place likeNashville.
Don't know about Phoenix, but Iknow Nashville, for example, way
(17:25):
overbuilt.
And so now what's happening isall those builders, they've got
it, they're stuck with excessinventory.
And so they're just simplytrying to figure out, they can't
find a buyer, but what they'lldo is they'll turn it into a
rental property because thereare more people who can rent
right now but can't buy,especially in the younger part
of the population.
They simply can't afford to buyat the prices that they're at.
(17:48):
So rather than reduce the price,a builder might decide to rent
the place.
It's a different opportunityoverall.
So I think that's a little bitof the trend that you're seeing,
and it's just kind of a naturalresult of what happened.
We call it the COVID effect, andCOVID had effect on so many
different places, and it'sreally continuing to play on.
SPEAKER_02 (18:11):
How has all of this affected, let's call it, people
under 30 or 35 and theirspending habits and their
financial planning?
I talked to some young peoplewho've essentially given up on
the idea of home ownership.
It just seems impossible.
SPEAKER_01 (18:29):
That is a trend that we're watching very closely.
It is a mindset that's outthere.
I won't say it's entirelydifferent than other
generations.
A lot of people, young people,have come in and felt as though
things were unattainable, butthen they've been able to attain
them over time.
It's just that things seem verydaunting.
But I will say that thisyoungest generation is probably
(18:52):
more stretched than previousgenerations.
SPEAKER_02 (18:56):
This younger generation has a hell of a lot
more student loans than mygeneration.
Right.
SPEAKER_01 (19:01):
No, student loans is a big impact.
I think just simply the sheerprice of a house, of buying a
house, is a very major impact.
I also think that inflation wasmuch more impactful for the part
of the population that didn'thave wealth.
So what happened is, you saw thenice run-up in terms of
(19:24):
inflation.
It's been tamed prettysignificantly.
We were at 9%.
We're now at 2.7%, so it's muchbetter.
But just because inflation isnot going up at the same pace
doesn't mean Prices are comingdown.
They haven't come down,obviously.
They're still high relative towhat they were.
And really, when you look atwages in the United States
(19:48):
relative to inflation, since2021, we've actually had on an
inflation-adjusted basis adecline in wages in the private
sector of the economy.
So people are making less.
People got, you know, they got,if you were young, Let's say in
2021, you got a nice check fromthe government probably, right?
(20:11):
You got a nice check, the COVIDcheck, and everybody felt pretty
wealthy.
And people saved that, at leastinitially, because they couldn't
spend it.
There was no place to spend it.
But now people have spentthrough that.
So you have no savings.
You have no real wage gain.
You've got student loan debt.
(20:33):
And you've got an inordinatelyhigh home prices in most
markets.
And it really is not a greatpicture.
And it's making it verydifficult for younger consumers
as they're beginning to startout to really figure out where
to go.
So it is a challenge.
And it's a big challenge forcredit unions and their young
membership to solve that problemfor them.
SPEAKER_02 (20:57):
Well, I think some credit unions are...
solving in part by issuing newcar loans.
I'm hearing numbers as high as10 years.
I don't know if that's actuallytrue, but it seems to me crazy.
I mean, this car is going to bea piece of junk at 10 years.
You're still paying 500 bucks amonth or whatever.
Is what I'm saying about autoloans, is that something that
(21:19):
you're tracking, that you'reaware of?
SPEAKER_01 (21:21):
I haven't seen a 10-year.
I've seen seven years.
I think I've seen eight years.
I know for sure I've seen sevenyears.
I haven't seen 10.
I sure hope it's a card thatwill last, though, because 10
years is a long, long way.
I think the biggest issue for areally important issue for
credit unions, it's not justoffering the right products, but
(21:43):
also really being more engagedin that advisory side and really
trying to help that young memberto really think about their
situation and to make the rightkinds of decisions.
Sometimes if you can get a...
savings of 30 or 40 or 70dollars a month difference by
going from a you know from afive-year loan to a seven-year
(22:06):
loan or whatever it would be youmight think that's a great plan
but it's probably notnecessarily a great plan you
know somebody could show youthat if you can find ways in
other areas to increase thatpayment you're actually going to
be much better off and so ithink that whole notion of
really taking that role offinancial advisor very seriously
(22:28):
rather than just be a marketerof product, I think is a real
important role for credit unionsto take with that younger
generation.
Because, you know,unfortunately, our levels of
financial education in thiscountry are not good.
We don't do a good job in highschool or college of educating
our people about how to makeprudent financial decisions.
(22:52):
I got to tell you a reallyinteresting story.
My youngest daughter graduatedfrom college in the last, I
don't know, five years or so.
And she told me a story about,and I talked with her economics
professor.
He offered a seminar at the endof the year.
that she was graduating abouthow to buy a car and all the
(23:13):
things to consider.
And he said it was the mostwidely attended session he had
ever hosted.
He was just talking more aboutreal life, how to make the
decisions.
He wasn't specifically trying totell them how to buy a car, but
it was fascinating because Italked to the professor.
He was an economics professor.
It's just amazing how littlepeople who are walking into the
(23:35):
world, really walking into theworld, and have real long-term
decisions to make here,financial decisions to make, how
ill-equipped they are to makethose decisions.
They just don't know the basics.
SPEAKER_02 (23:48):
What university is that?
SPEAKER_01 (23:51):
It was a small school in Ohio called Kenyon
College.
Kenyon is a good school.
SPEAKER_02 (23:56):
Yeah.
It doesn't surprise me that theywouldn't have any education on
that, because Kenyon is like aliberal arts college.
You learn your James Joyce, youdon't learn how to negotiate a
car lot.
SPEAKER_01 (24:07):
Well, that is true, but you would think that
someplace in there, between highschool and college, you would
think that you could find aplace to be able to learn about
these things, but it doesn'tseem like we really are.
And I'll tell you anotherinteresting story is...
I heard this from another creditunion.
They were telling me that theywere hosting financial service
(24:28):
or financial planning type orfinancial, you know, education
type workshops for youngmembers.
And some of their, and they gotfeedback from the parents of
these kids.
And the parents said, you know,what you did for my kid was so
great, but now can I come and,and, and, participate in this as
(24:49):
well.
So I don't think our lack offinancial literacy is limited to
the younger generation.
SPEAKER_02 (24:55):
Speaking for myself, I'd say me and the baby boomers
I know are financiallyilliterate to an extraordinary
extent.
We've just gotten by because theeconomy's been pretty good.
It's forgiven our mistakes.
Now, what should a credit unionbe doing now to I think this is
(25:17):
a time when they have toreassess their whole attitude
and thought about loans and etcetera, et cetera.
I mean, this is a brave newworld we're going through.
SPEAKER_01 (25:27):
Yeah, yeah.
It is a different world.
Credit unions have always saidthat they compete on the value
of service and things like this,but the reality is...
That's not really where theycompete.
Where they really compete is onprice, for the most part.
(25:48):
And that they can always come inat a better price.
And part of that is the taxadvantage that you've got and
the You know, it's probably twothings.
It's a tax advantage, whichplays well, but also the fact of
the matter is that you don'thave stockholders that you have
to satisfy.
Your stock, your shareholdersare your members.
And so instead of making areturn to stockholders who are
(26:09):
not customers, you're makingreturn to shareholders who are
members.
And so that's always the waythat credit needs to be able to
have, provide a better deal forthe membership.
SPEAKER_02 (26:21):
I don't think many CEOs have very big credit
unions.
And every single one will tellme, sometimes off the record,
that they can beat the rates ofthe big banks on almost anything
and still make it because of thetax advantage, among other
things.
And also, they don't have to payan accountant$3 million a year
(26:42):
to do their books.
I mean, I'm sure they pay anaccountant, but they don't need
to spend that much, et cetera,et cetera.
So, yeah, they have greatfinancial advantages, and they
do win on rates.
SPEAKER_01 (26:53):
But then the question is whether or not that
should be, whether or not thatis enough to be successful
long-term, especially with, Ithink, the change that we're
seeing.
The people are, there's twomajor trends that are out there.
First of all, especially foryounger generation, they want
things to be as they, you know,the whole technology thing is
(27:15):
very big.
And that's not the only thingthey make a determination on in
terms of who they select, but itis a very big piece.
And The industry really has tofocus on closing whatever gaps
they have to the greatest degreepossible on the technology side.
It's not an easy thing to do.
When you think about how muchmoney a Chase or a B of A or a
Wells is spending on technology,right?
(27:37):
But you do have to find, youhave to identify where those
gaps are biggest and you have tobe able to close those gaps.
And the bigger issue is focus onprocess.
How do you make the processsimpler?
That's what the consumer isreally asking for is how do I
make the process simpler?
The people will pay for a betterprocess.
They're very much willing to doso.
(27:59):
There are some people who willalways simply be priced.
There's no doubt about it.
But for more and more people,it's how do you make life
simpler for me?
So I think there's got to be abig focus on that.
But I think that in and ofitself will not be enough
either.
Because I think there's also somuch confusion out there in the
(28:21):
financial world, and there's somuch risk that consumers are
really looking for someone whocan help them to make better
financial decisions.
And if you can start...
building your brand around thatpiece, I think that's something
that's going to benefit you asan organization.
So you're not just simplyproviding the best rate, but
you're actually helping themember to make the right types
(28:44):
of financial decisions andthings that kind of guide them
through life a little bit more.
I think it was back in theprobably 1990s when there was
this first whole really bigexplosion of financial planning.
that happened across the entirefinancial services space, and it
became a very big word.
(29:05):
And it's always been kind ofthere in the background, and
it's always had this kind ofnotion of, you know, whether or
not you're, you know, how you'redoing the financial planning.
And I'm not saying that creditunions should be doing that, but
they should be in that role ofadvisory.
I think that's a way to reallydifferentiate yourself as an
institution is that you'replaying that advisory role and
(29:29):
you're really helping the memberto make some better financial
decisions.
I think that is gonna be reallykey.
The other thing I think is, wetalked about process.
I think the industry's got tofind the way to improve process
in a way that A, improves themember experience but b also
(29:52):
bends the cost curve downbecause i think margin
compression is going to be afact of life you know it may go
up and it may go down but if thelong-term trend around margins
is going to be compression forthe industry.
So we're gonna be operating onless spread.
We're probably gonna beoperating on less levels of
(30:12):
non-interest income.
I don't think that NSF is goingto ever be again a major, major
growth opportunity for financialinstitutions.
Even with the CFPB virtuallydormant right now, I don't think
things like NSF income will everbe the same significant source
(30:33):
of income that they've been.
And then you already see thepressure that's on things like
interchange with Durbin andthings like this.
So I think we have to think thatyou look at the operating model
If we face longer termcompression or at least
stagnation of margins, no realgrowth there.
And if we say that non-interestincome is not going to grow,
(30:55):
then we've really got to find away to contain our costs.
And that means we've got tobecome a lot more productive,
which means our processes haveto improve, which means we've
got to use AI more effectivelyin pretty much everything that
we do, for example.
So I think that's another majortrend for the industry to focus
in on.
SPEAKER_02 (31:15):
Credit unions are wrestling with AI.
A question I ask a credit union,a credit union will say, oh,
we've got this new AIinitiative, blah, blah, blah.
I say, what impact is that goingto have on staffing?
And what they always say isnone.
And in my mind, I think, well,there's going to be an impact.
There has to be an impact onstaffing.
(31:36):
There simply must be.
A lot of credit unions areoperating in a world of delusion
about that.
They don't want to acknowledgethat the machine will take some
jobs, period.
Furthermore, you need money topay for the machine.
It's not free.
ChatGPT doesn't do this work forfree.
What I'm about to say mightsound like a political question.
(31:56):
I'm asking you as an economist,not political.
The current administration seemsto me to be reshaping or
attempting to reshape the globaleconomy, the global economic
relationships on veryfundamental levels.
What does that do to aneconomist's ability to make
(32:17):
predictions?
I mean, we're seeing a level ofchange that I don't think has
ever occurred in my lifetime.
A desire for a level of changethat's never occurred.
UNKNOWN (32:29):
Yeah.
SPEAKER_01 (32:29):
The world is never stagnant, but there are also
times of major change.
And it's interesting, there's anumber of different sociologists
slash economists and otherpeople have talked about the big
cycle being about 80 years.
And it is interesting because ifyou look at where we are today,
(32:49):
it's 80 years from the end ofWorld War II.
And I think that was asignificant change.
And then 80 years before thatwas the Civil War.
And then 80 years before thatwas the Revolutionary War, so
you see these things happeningin 80-year cycles.
I'm not saying that
SPEAKER_02 (33:04):
that— And earlier you said that basically the
economy that sprung up in Europepost-World War II, which we
assisted in, that set that worldorder for a while.
Yeah, it did.
It did.
And that's now being undone, Ithink, or at least there seems
to be an effort to undo it.
SPEAKER_01 (33:26):
It is.
It's different.
I think the argument that's madeabout the economy that came out
of World War II was that it wasdone very purposefully, which
was to help rebuild, especiallyWestern Europe, you know,
against the Soviet Union,against the potential predation
(33:46):
of the Soviet Union.
And so you wanted to rebuildthose economies in Western
Europe as quickly as possible.
The United States economy isvery strong.
We could afford to hurtourselves in terms of the
export.
We'll make our exports verycostly and make imports very
cheap for us, which is exactlywhat we did.
But what the long-term effect ofthat– in the argument is is that
(34:10):
what that did is it hauled outthe middle class because
ultimately it drovemanufacturing from places like
in the midwest to places likeyou know uh in asia right for
example you know china anotherjapan first japan you know
remember that in the 1980s andthen you know china after that,
(34:30):
or other parts of SoutheastAsia.
So the notion is that in thiseconomy, what we did is we
followed out the middle class.
The upper class gotextraordinarily rich because
international trade is verylucrative, but the middle class
was really hurt by this.
And that's a little bit of wherewe are today.
(34:51):
I mean, I think the, and again,not to be political at all, but
I think when you look at Thephenomenon of Trump, I think
it's more of a result of not acause of things that are
happening.
I think the success of DonaldTrump in being elected both in
2016 and 2024 was because of thesituation that we were in and
(35:14):
the things that he was talkingabout.
He didn't create those things.
They were already happening.
And then the response of theAmerican population was to vote
for him because he representedchange in their minds, a
movement away from a system thatwasn't working for the middle
class as well as it had.
(35:35):
So I think that paradigm shiftis underway.
What it exactly will be, it'shard to know because I think
we're only at the beginning ofthe change.
SPEAKER_02 (35:47):
If the change is of the magnitude that I think it's
hoped to be, we're really justat the beginning, and there's no
charting where it's going to go.
This is uncharted territory.
SPEAKER_01 (36:03):
You look at other trends that are happening both
internationally as well asdomestically, things like
population.
You know, places like China,places like Japan, places like
most of Western Europe, noteverywhere, but a lot of parts
of Western Europe have apopulation dearth coming.
(36:26):
There have not been nearlyenough births to replace the
population that's, you know,moving into old age.
And so what you've got iseconomies that are
extraordinarily, you know,they're extraordinarily
precarious.
You know, like, for example,China is trying to keep the
second up there, you know, whatthey might call the economic
(36:47):
miracle going, but they don'thave enough of their own
population to be able to supportthe strong growth.
And so they really are dependentupon exports.
And so what does the impact ofhigher tariffs and restrictions
on goods coming in have on them,especially when the number one
market is the United States,right?
So you have all these kinds ofthings that are interplaying.
(37:10):
And so it creates a lot ofuncertainty out there.
And I think that's the otherthing is that for everyone who's
running any organization,whether it's accrediting or
anything else, you have tounderstand that there's two
things.
There's a lot more uncertaintynow than there's probably been
at any point in most of ourlives.
(37:31):
That's point number one.
And point number two, there'salso a lot more volatility.
So the changes that could happencould be very difficult big
changes.
They're not just subtle changesat the margins, but you could
see bigger changes happeningoverall.
For example, I'm not sayingChina's going to fail, but there
are some people who are sayingChina's going to fail.
(37:55):
They're so broke, they've got somuch debt in that economy that
it's a not sustainablesituation.
I'm not saying that's true, butI'm saying if something like
that were to happen, you realizethe impact that it has on the
world.
It's really hugely significant.
Also, you know, you think aboutU.S.
debt,$37 trillion worth of U.S.
(38:15):
debt.
You know, the number one, otherthan our own domestic buyers of
our debt, the number one buyerof our debt is Japan.
Japan is a rapidly agingpopulation, rate savers, but a
rapidly aging population.
rapidly aging population andthey won't be able to buy our
(38:36):
debt the same way because alltheir people are moving into
retirement and they have tostart using that money to live
on.
So you have all these variousinteresting patterns that are
emerging out here that are goingto impact things in a pretty
significant way.
It's very different.
It's going to be very differenteconomically in
SPEAKER_02 (38:55):
the future than it is now.
Over the years, I've talked witha number of CEOs of Fortune 50
companies, very big companies.
And one thing I learned is thatthey think they can deal with
anything, but the one thing theyhate to deal with is
uncertainty.
If you say, this is going tohappen, oh, well, I'll come up
(39:16):
with a plan for that.
Yeah, no problem.
And they're serious.
They're confident.
But if you say, well, here's thedeal.
You can't know what's going tohappen.
Oh, my heavens, this would beterrible.
We're kind of in that situationnow.
It's like, gee, what's going tohappen?
I don't know.
Yeah.
SPEAKER_01 (39:34):
Yeah, I agree.
I don't think we really know.
And that's where it makes,that's where what you want to
have is you want to have a, youwant to have an operating plan
as an organization that could,that will be successful in many
different types of environments.
You know, for a credit union,you want to think, I want to be
(39:57):
able to be successful in ahigh-rate environment or a
low-rate environment.
I want to be able to besuccessful in a you know,
booming economy or an economythat's going bust.
I want to be able to besuccessful in a place where, you
know, technology is reallytaking off or where technology
is kind of, not stalled, but,you know, it hasn't proven out
(40:21):
to be the same moon as maybe,you know, it was all
anticipated.
And so I think you really haveto be You have to be much more,
you have to give your, you haveto really look at and build out
a model that works across a widevariety of potential situations
that you might find yourself in.
(40:41):
And that's not easy to do.
It's a very difficult thing todo.
SPEAKER_02 (40:45):
That's the best thing you've said today.
You said a lot of good things,but I love that one.
That the credit union CEO andexecutives that need to come up
with a flexible plan.
that can deal with variouseconomic outcomes.
Not easy to do, but it's awonderful goal and it's probably
a necessary goal given that noone knows what the hell's gonna
(41:06):
happen.
It's very perplexing right now.
Before we go, think hard abouthow you can help support this
podcast so we can do moreinterviews with more thoughtful
leaders in the credit unionworld.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
(41:28):
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
It's my hope it won't all bemedical banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
(41:49):
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
We want your support.
We thank you for your support.
The CU2.0 Podcast.
Welcome to
SPEAKER_00 (00:06):
the CU2.0 podcast.
(00:28):
And now, the CU2.0 podcast withRobert McGarvey.
SPEAKER_02 (00:35):
You might know it as the dismal science, but a
conversation with Bill Handel,chief economist of Radden, a
Fiserv company, is anything butdismal.
In fact, it's an enlighteningromp through the complexities
and confusions of today's globaleconomy.
In the show, Handel makes aprediction about the future of
(00:55):
interest rates.
That's a question not everycredit union executive's mind.
And nope, don't expect animminent return of 3% or 4% in
30-year fixed-rate mortgages.
Don't expect it.
Handel also talks about howyoung adults are adjusting their
financial habits to navigatetoday's economy.
Got to understand that in thecredit union business.
(01:18):
Importantly, too, Handelexplains what is going on in the
White House's attempt to resetthe global economy.
And he indicates that thepresent economy is something of
an artifact of the aftermath ofWorld War II.
That's 80 years ago.
So there are reasons to think areset just might be in order.
But how is a credit union CEOsupposed to navigate in a global
(01:39):
economy that is filled withuncertainties?
Ours is.
Handel has advice about that,and his core advice is create
plans that feature built-inflexibility.
Because really, you don't knowwhere interest rates will be a
year from now.
You don't know a lot of thingsabout the economic climate a
year from now.
Accept that and know thatstaying flexible will be key to
(02:02):
succeeding, he says.
Handel also says that theoperating margins of credit
unions have to improve, period.
Period.
He tells why in the show.
Dismal science?
Not in this show.
Here, economics becomes anexciting tool for navigating
what's coming at us, and it'scoming now.
Listen up.
(02:23):
So we're going to talk aboutsomething that's confusing the
heck out of me, which is whereinterest rates are going.
Yeah.
For a year now, I've beenhearing, oh, I'll delay buying a
house because the interest rateswill go down.
Well, they're not.
So what's going on here?
SPEAKER_01 (02:44):
Yeah, no, it's a great question.
And it's a lot of interrelatedfactors that are having an
influence here.
The first thing to understand isabout interest rates is that
they have been abnormally lowfor a long period of time.
really since the early 2000s,kind of a reaction and a
response to first a series ofevents.
(03:09):
You had the dot-com bust, thenyou had 9-11, then you had the
great financial crisis, then youhad COVID, and you had a lot of
other factors.
All those things havecontributed to pushing rates to,
by historical sense, veryartificially low levels.
And those are what we've becomeused to having, but they're not
(03:33):
actually normal, the normallevel at which rates should be.
So I think there's thatlong-term issue there.
you know, the long-term view ofwhere interest rates should be
that is influencing things.
So right now, everybody'ssaying, well, rates need to be
lower.
But having said that, I thinkthere's probably a better than
(03:55):
99, 95% chance that the Fed willlower rates at their next
meeting in September.
That's pretty high.
I think they tell us whatquarter point.
Probably quarter point would be,is what they would probably do.
If they went more than a quarterpoint, which probably would make
the administration happy, but ifthey went more than a quarter
(04:16):
point, you'd probably see anadverse, actually an adverse
reaction by the market ingeneral.
And you might see interest ratesactually move, longer rates move
in a direction that they don'tintend either.
The interesting thing is thatthe Fed since September of last
year has dropped the Fed fundsrate by 100 points, right?
(04:39):
They've dropped it by 4% acrossthree cuts.
And yet in that same period,short-term or medium-term and
long-term rates have both goneup.
So the two-year treasury andthat same span is up by about 20
basis points, and the 10-yeartreasury is up by about 70
points.
So what you're actuallybeginning to see is the yield
(05:01):
curve take on a much more normalshape which is you know what
it's been for a long period oftime it's inverted where short
rates have been higher thelonger rates now it's going it's
beginning to flip but it's stillnot there yet very shortest
right like the you know the fedfunds or the one month is high
then it goes down you know atthe two to three year but then
(05:23):
goes continues to go back up umi think what you'll begin to see
happen is that the fed willslowly drop rates But that will
affect the short-term.
Longer-term rates are likely toremain at higher levels.
They're not going to move inlockstep as the Fed cuts rates,
short-term rates.
SPEAKER_02 (05:42):
My sense, and I don't purport to be an expert in
this, is that there's not aconsensus among economists about
the impact tariffs will have onA, inflation, and B, rates.
Am I right about that?
SPEAKER_01 (05:58):
Yeah.
That's absolutely true.
In March and April, especiallyApril when the tariffs were,
what did they call it?
Liberation Day, I can't rememberwhat the term was.
I
SPEAKER_02 (06:07):
remember saying, I'm no economist, obviously, all my
heavens, inflation is on us.
And a lot of economists weresaying, yeah, you're right,
you're right.
And now it's a much more mixedbag.
SPEAKER_01 (06:20):
Yeah, it's a much more mixed bag.
And there's a couple of factors.
Number one is that Businesseshave absorbed some level of the
cost as opposed to passing it onsimply because of the impact on
demand.
That's number one.
But the bigger issue is that theactual level of tariffs has not
(06:41):
been nearly as large as what thefear was.
You know, there was, you know,you're talking, at points you
were talking about very, veryhigh levels of tariffs, but
really because of negotiationsand things that have happened,
it's actually been much lowerlevels.
And there's been deferments,like we just saw the deferment
with China again, right, interms of the tariff.
(07:02):
I
SPEAKER_02 (07:02):
think the tariff with the EU is 15% on most
items, which is, to me, that's abearable number.
SPEAKER_01 (07:09):
I think that's probably what we ought to count
on is like 10%, 15% would beprobably where we're going to
end up with for most of theworld.
I think that's actually what Ithink the administration would
be happy with.
And honestly, I don't know ifyou're going to see it come down
(07:30):
further.
It's possible, but I don't thinkso.
And the reason I don't think sois because that's generating
actual real revenue for theTreasury.
And the Treasury, at this point,is not going to be very happy to
give up any source of revenuethat it can generate.
Now, again, it's not huge.
It's billions of dollars, which,you know, when we talk about$37
(07:51):
trillion of total debt, that'snot a big number.
But everything is out for theTreasury.
SPEAKER_02 (07:57):
So I think...
The Secretary is saying thatmoney will be used to pay down
debt.
SPEAKER_01 (08:03):
Right.
And it will be.
It's just not that.
It's not hugely impactful.
I hear
SPEAKER_02 (08:08):
you.
$37 trillion.
Minus$300 million or$3 billioneven is a big deal.
Now, I'm a credit unionexecutive.
Imagine, what am I supposed tomake of this situation?
People are wanting lowerinterest rates.
(08:29):
We have the uncertainty of thetariffs.
Am I supposed to just hide undermy desk for six months?
I'd be tempted to.
SPEAKER_01 (08:38):
Yeah, I don't think the tariffs are, I honestly
don't think tariffs were ever asbig of an issue as some people
painted to me.
I don't think they really willbe.
I don't think the tariffs aresomething that is hugely going
to be impactful.
My sense of it, and this is justmy personal opinion, my sense of
(09:00):
it is that it was more of anegotiating tactic on the part
of the administration as opposedto, with the intent of of
eliminating some of the tariffsthat happened to be on U.S.
goods.
There has been truly tradeimbalance for about 80 years,
really since the end of WorldWar II.
And it happened for historicaland probably appropriate
(09:23):
reasons.
Following World War II, theUnited States stood strong.
We hadn't been impacted by thewar in terms of damage to our
economy or damage to our citiesor anything.
And the rest of Europe had.
And so in order to help Europerebuild, we merely allowed them
to impose tariffs, prettysubstantial tariffs on our
(09:48):
goods, and we didn't imposeanything on theirs.
And so that made that easy forthem to export to us and
difficult for us to export tothem, but that helped them
rebuild their economies.
And that's really the way it'sbeen since the end of World War
II.
So tariffs, it's been animbalance.
playing field as far asinternational trade goes.
That was really initiallytargeted for Western Europe as a
(10:13):
way to rebuild Western Europeand to withstand against the
Soviet Union.
That's the whole playbook thatwas there.
Now things are entirelydifferent.
The rest of the world has takenadvantage, especially China, of
a very imbalanced trade policy.
I think that's what's trying tobe corrected here.
So it's really a negotiationthat's happening.
That's why I don't think tariffsare nearly as big of an issue as
(10:35):
some people were painting themout to be, because I think it
was really a way to negotiate toa little bit more level of a
playing field overall.
The bigger issue, I think, forexecutives is the fact is that
with 15 to 20 years of lowrates, we've built in an
expectation on the part of theconsumer in terms of where
interest rates should be,particularly in the real estate
(10:56):
world.
Mortgage rates at 3%, actuallyless than 3%, 2% in some cases
for many people, it's notnatural.
It's not really where ratesshould be, but it's where they
were.
And so what we've basically doneis locked up the real estate
market because with rates thatlow and that many people sitting
(11:20):
at extraordinarily low rates, somany people can't even afford to
buy that next house.
Because if that meant that theyhad to give up their 2% or 2.5%
mortgage, and take on anothermortgage at 7%, 6.5%, 7%,
whatever they would be able toget, they couldn't afford the
payment.
So that reduces the supply ofavailable housing that's out
(11:44):
there.
And that, in combination withhigher rates, makes home
affordability almost impossiblefor younger millennials or Gen
Zs who are out there trying tobuy.
So the lockup of the real estatemarket is probably the most
pernicious impact the ratepolicy that went back to the
last 20 years.
(12:05):
Because with very low rates thatwe experienced for 20 years, we
really bid up the price of realestate because people could
afford it when rates wereextraordinarily low.
They could more afford it whenrates were extraordinarily low.
And now that rates have goneback up and house prices are at
least not yet nationally comingdown to any substantial degree,
(12:25):
housing becomes extraordinarilyunaffordable.
So I think that's the firstthing that has to get solved.
And it is slowly getting solved.
People are beginning to loosenup a little bit and be willing
to recognize that they'reprobably gonna have to give up
that two and a half to 3%mortgage in order to get that
bigger house because theirfamily's wrong.
(12:47):
And so I think you're beginningto see that loosen up probably
in conjunction with astabilization or even in some
markets, a slight decline interms of real estate values.
So that market is slowlycorrecting.
Still, I think for creditunions, the big growth
opportunity still will be in thehome equity lending because more
people were probably going tochoose to add on to the house or
(13:09):
fix up their house as opposed,you know, keep that mortgage at
two and a half, 3% as opposed tosimply selling and taking out a
new mortgage to get betterplace.
So home equity lending willprobably be a primary lending
tool, but I think you stillshould keep an eye on that first
mortgage as an opportunity.
SPEAKER_02 (13:27):
Now, what kind of interest rates on the home
equity loans?
SPEAKER_01 (13:31):
You know, they're typically going to be coming in
at five and a half, six percent,somewhere in that range, you
know, depending on whether it'sa line or a loan.
If it's a line, it will be tiedto prime.
If it's a loan, it will be afixed rate and probably in that
same five and a half, sixpercent.
Maybe, you know, someinstitutions lower, some
institutions a little bithigher.
But, you know, the advantage forthe member there is that they're
(13:51):
not they're not financing entireproperty.
They're only financing property.
you know, that, that amountthat's
SPEAKER_02 (13:57):
50 grand for a new kitchen or something like
SPEAKER_01 (14:01):
that.
Right.
SPEAKER_02 (14:02):
Nonetheless, psychologically, they're
accepting five and a half or 6%interest.
I remember getting a mortgage in2004 at 6.75%.
And I was pretty happy with thatrate.
It wasn't a great rate, but itwasn't an awful rate.
Yeah.
And so when I hear peoplewhining about 6%, I think it
doesn't sound that bad to me.
(14:22):
And you're telling mehistorically it's actually not
bad at all.
SPEAKER_01 (14:26):
No.
No.
Where mortgage rates are todayis really low probably.
moderate to low by historicalstandards.
If you go back, if you look atsome of the data sets that have
been tracked, they don't go backinto deep, deep past, but they
can go back into the 1970s,1980s.
And even with the recent run-upin terms of mortgage rates,
(14:49):
we're still very low byhistorical norms.
I remember the 1980s wheremortgages were coming in at 18%.
SPEAKER_02 (14:58):
Right.
I have a relative who reminds methat he paid, I think, 14% in
1980.
And he was happy.
SPEAKER_01 (15:05):
Yeah.
So I think it's a combination ofa change in expectations that
will happen slowly over time.
Plus the lessening, and even insome markets, the reduction in
home, the lessening of the rateof increase or even actual
reduction in terms of homevalues in certain markets.
We're already seeing that inparts of Texas or Florida,
(15:26):
Tennessee, Arizona.
We're seeing that already happento a certain extent.
It's not a massive increase.
reduction in price that happenedin 2008 because that was a very
different type of market thanwhat we're in today.
But you're seeing at leastsoftening and maybe moderate,
you know, slight declines interms of home values.
(15:47):
So that, you know, if thathappens and then people change
their mind a little bit about,you know, mortgage rates and
kind of, you know, settle intothe quote new norm, I think
you'll see the real estatemarkets begin to open up a
little bit more.
SPEAKER_02 (16:03):
In Phoenix, where I live, projects that had been
conceived of as condominiumshave been switched to rental
properties before they'recompleted.
Is that anomalous?
Is that unique to Phoenix, or isthat a national trend?
SPEAKER_01 (16:18):
You're seeing that.
It depends upon.
It's a market-by-market trendthat you'll see.
So it depends upon what'shappening.
So in many markets, and I'm notsure if Phoenix were classifying
us wrong, but in so manymarkets, what happened was the
COVID impact.
The COVID impact was everybody'sworking remote and all of a
sudden they decide that, youknow, I want to be able to live
(16:42):
in different places.
And Phoenix is a nice place tolive or Nashville is a nice
place to live or, you know,markets in Austin, for example,
is a nice place to live.
And what we saw was a lot ofhome, a lot of buying activity
happened right as COVID was, youknow, impacting the economy.
And so then what happened was alot of buildings started
(17:04):
happening as well.
When there was a lot of demandfor properties in some of those
markets where people thoughtwere more desirable, because of
warm weather, whatever ithappens to be.
There was a lot more demand andso therefore there was a lot
more building.
And so in some cases there wasoverbuilding that happened
particularly in a place likeNashville.
Don't know about Phoenix, but Iknow Nashville, for example, way
(17:25):
overbuilt.
And so now what's happening isall those builders, they've got
it, they're stuck with excessinventory.
And so they're just simplytrying to figure out, they can't
find a buyer, but what they'lldo is they'll turn it into a
rental property because thereare more people who can rent
right now but can't buy,especially in the younger part
of the population.
They simply can't afford to buyat the prices that they're at.
(17:48):
So rather than reduce the price,a builder might decide to rent
the place.
It's a different opportunityoverall.
So I think that's a little bitof the trend that you're seeing,
and it's just kind of a naturalresult of what happened.
We call it the COVID effect, andCOVID had effect on so many
different places, and it'sreally continuing to play on.
SPEAKER_02 (18:11):
How has all of this affected, let's call it, people
under 30 or 35 and theirspending habits and their
financial planning?
I talked to some young peoplewho've essentially given up on
the idea of home ownership.
It just seems impossible.
SPEAKER_01 (18:29):
That is a trend that we're watching very closely.
It is a mindset that's outthere.
I won't say it's entirelydifferent than other
generations.
A lot of people, young people,have come in and felt as though
things were unattainable, butthen they've been able to attain
them over time.
It's just that things seem verydaunting.
But I will say that thisyoungest generation is probably
(18:52):
more stretched than previousgenerations.
SPEAKER_02 (18:56):
This younger generation has a hell of a lot
more student loans than mygeneration.
Right.
SPEAKER_01 (19:01):
No, student loans is a big impact.
I think just simply the sheerprice of a house, of buying a
house, is a very major impact.
I also think that inflation wasmuch more impactful for the part
of the population that didn'thave wealth.
So what happened is, you saw thenice run-up in terms of
(19:24):
inflation.
It's been tamed prettysignificantly.
We were at 9%.
We're now at 2.7%, so it's muchbetter.
But just because inflation isnot going up at the same pace
doesn't mean Prices are comingdown.
They haven't come down,obviously.
They're still high relative towhat they were.
And really, when you look atwages in the United States
(19:48):
relative to inflation, since2021, we've actually had on an
inflation-adjusted basis adecline in wages in the private
sector of the economy.
So people are making less.
People got, you know, they got,if you were young, Let's say in
2021, you got a nice check fromthe government probably, right?
(20:11):
You got a nice check, the COVIDcheck, and everybody felt pretty
wealthy.
And people saved that, at leastinitially, because they couldn't
spend it.
There was no place to spend it.
But now people have spentthrough that.
So you have no savings.
You have no real wage gain.
You've got student loan debt.
(20:33):
And you've got an inordinatelyhigh home prices in most
markets.
And it really is not a greatpicture.
And it's making it verydifficult for younger consumers
as they're beginning to startout to really figure out where
to go.
So it is a challenge.
And it's a big challenge forcredit unions and their young
membership to solve that problemfor them.
SPEAKER_02 (20:57):
Well, I think some credit unions are...
solving in part by issuing newcar loans.
I'm hearing numbers as high as10 years.
I don't know if that's actuallytrue, but it seems to me crazy.
I mean, this car is going to bea piece of junk at 10 years.
You're still paying 500 bucks amonth or whatever.
Is what I'm saying about autoloans, is that something that
(21:19):
you're tracking, that you'reaware of?
SPEAKER_01 (21:21):
I haven't seen a 10-year.
I've seen seven years.
I think I've seen eight years.
I know for sure I've seen sevenyears.
I haven't seen 10.
I sure hope it's a card thatwill last, though, because 10
years is a long, long way.
I think the biggest issue for areally important issue for
credit unions, it's not justoffering the right products, but
(21:43):
also really being more engagedin that advisory side and really
trying to help that young memberto really think about their
situation and to make the rightkinds of decisions.
Sometimes if you can get a...
savings of 30 or 40 or 70dollars a month difference by
going from a you know from afive-year loan to a seven-year
(22:06):
loan or whatever it would be youmight think that's a great plan
but it's probably notnecessarily a great plan you
know somebody could show youthat if you can find ways in
other areas to increase thatpayment you're actually going to
be much better off and so ithink that whole notion of
really taking that role offinancial advisor very seriously
(22:28):
rather than just be a marketerof product, I think is a real
important role for credit unionsto take with that younger
generation.
Because, you know,unfortunately, our levels of
financial education in thiscountry are not good.
We don't do a good job in highschool or college of educating
our people about how to makeprudent financial decisions.
(22:52):
I got to tell you a reallyinteresting story.
My youngest daughter graduatedfrom college in the last, I
don't know, five years or so.
And she told me a story about,and I talked with her economics
professor.
He offered a seminar at the endof the year.
that she was graduating abouthow to buy a car and all the
(23:13):
things to consider.
And he said it was the mostwidely attended session he had
ever hosted.
He was just talking more aboutreal life, how to make the
decisions.
He wasn't specifically trying totell them how to buy a car, but
it was fascinating because Italked to the professor.
He was an economics professor.
It's just amazing how littlepeople who are walking into the
(23:35):
world, really walking into theworld, and have real long-term
decisions to make here,financial decisions to make, how
ill-equipped they are to makethose decisions.
They just don't know the basics.
SPEAKER_02 (23:48):
What university is that?
SPEAKER_01 (23:51):
It was a small school in Ohio called Kenyon
College.
Kenyon is a good school.
SPEAKER_02 (23:56):
Yeah.
It doesn't surprise me that theywouldn't have any education on
that, because Kenyon is like aliberal arts college.
You learn your James Joyce, youdon't learn how to negotiate a
car lot.
SPEAKER_01 (24:07):
Well, that is true, but you would think that
someplace in there, between highschool and college, you would
think that you could find aplace to be able to learn about
these things, but it doesn'tseem like we really are.
And I'll tell you anotherinteresting story is...
I heard this from another creditunion.
They were telling me that theywere hosting financial service
(24:28):
or financial planning type orfinancial, you know, education
type workshops for youngmembers.
And some of their, and they gotfeedback from the parents of
these kids.
And the parents said, you know,what you did for my kid was so
great, but now can I come and,and, and, participate in this as
(24:49):
well.
So I don't think our lack offinancial literacy is limited to
the younger generation.
SPEAKER_02 (24:55):
Speaking for myself, I'd say me and the baby boomers
I know are financiallyilliterate to an extraordinary
extent.
We've just gotten by because theeconomy's been pretty good.
It's forgiven our mistakes.
Now, what should a credit unionbe doing now to I think this is
(25:17):
a time when they have toreassess their whole attitude
and thought about loans and etcetera, et cetera.
I mean, this is a brave newworld we're going through.
SPEAKER_01 (25:27):
Yeah, yeah.
It is a different world.
Credit unions have always saidthat they compete on the value
of service and things like this,but the reality is...
That's not really where theycompete.
Where they really compete is onprice, for the most part.
(25:48):
And that they can always come inat a better price.
And part of that is the taxadvantage that you've got and
the You know, it's probably twothings.
It's a tax advantage, whichplays well, but also the fact of
the matter is that you don'thave stockholders that you have
to satisfy.
Your stock, your shareholdersare your members.
And so instead of making areturn to stockholders who are
(26:09):
not customers, you're makingreturn to shareholders who are
members.
And so that's always the waythat credit needs to be able to
have, provide a better deal forthe membership.
SPEAKER_02 (26:21):
I don't think many CEOs have very big credit
unions.
And every single one will tellme, sometimes off the record,
that they can beat the rates ofthe big banks on almost anything
and still make it because of thetax advantage, among other
things.
And also, they don't have to payan accountant$3 million a year
(26:42):
to do their books.
I mean, I'm sure they pay anaccountant, but they don't need
to spend that much, et cetera,et cetera.
So, yeah, they have greatfinancial advantages, and they
do win on rates.
SPEAKER_01 (26:53):
But then the question is whether or not that
should be, whether or not thatis enough to be successful
long-term, especially with, Ithink, the change that we're
seeing.
The people are, there's twomajor trends that are out there.
First of all, especially foryounger generation, they want
things to be as they, you know,the whole technology thing is
(27:15):
very big.
And that's not the only thingthey make a determination on in
terms of who they select, but itis a very big piece.
And The industry really has tofocus on closing whatever gaps
they have to the greatest degreepossible on the technology side.
It's not an easy thing to do.
When you think about how muchmoney a Chase or a B of A or a
Wells is spending on technology,right?
(27:37):
But you do have to find, youhave to identify where those
gaps are biggest and you have tobe able to close those gaps.
And the bigger issue is focus onprocess.
How do you make the processsimpler?
That's what the consumer isreally asking for is how do I
make the process simpler?
The people will pay for a betterprocess.
They're very much willing to doso.
(27:59):
There are some people who willalways simply be priced.
There's no doubt about it.
But for more and more people,it's how do you make life
simpler for me?
So I think there's got to be abig focus on that.
But I think that in and ofitself will not be enough
either.
Because I think there's also somuch confusion out there in the
(28:21):
financial world, and there's somuch risk that consumers are
really looking for someone whocan help them to make better
financial decisions.
And if you can start...
building your brand around thatpiece, I think that's something
that's going to benefit you asan organization.
So you're not just simplyproviding the best rate, but
you're actually helping themember to make the right types
(28:44):
of financial decisions andthings that kind of guide them
through life a little bit more.
I think it was back in theprobably 1990s when there was
this first whole really bigexplosion of financial planning.
that happened across the entirefinancial services space, and it
became a very big word.
(29:05):
And it's always been kind ofthere in the background, and
it's always had this kind ofnotion of, you know, whether or
not you're, you know, how you'redoing the financial planning.
And I'm not saying that creditunions should be doing that, but
they should be in that role ofadvisory.
I think that's a way to reallydifferentiate yourself as an
institution is that you'replaying that advisory role and
(29:29):
you're really helping the memberto make some better financial
decisions.
I think that is gonna be reallykey.
The other thing I think is, wetalked about process.
I think the industry's got tofind the way to improve process
in a way that A, improves themember experience but b also
(29:52):
bends the cost curve downbecause i think margin
compression is going to be afact of life you know it may go
up and it may go down but if thelong-term trend around margins
is going to be compression forthe industry.
So we're gonna be operating onless spread.
We're probably gonna beoperating on less levels of
(30:12):
non-interest income.
I don't think that NSF is goingto ever be again a major, major
growth opportunity for financialinstitutions.
Even with the CFPB virtuallydormant right now, I don't think
things like NSF income will everbe the same significant source
(30:33):
of income that they've been.
And then you already see thepressure that's on things like
interchange with Durbin andthings like this.
So I think we have to think thatyou look at the operating model
If we face longer termcompression or at least
stagnation of margins, no realgrowth there.
And if we say that non-interestincome is not going to grow,
(30:55):
then we've really got to find away to contain our costs.
And that means we've got tobecome a lot more productive,
which means our processes haveto improve, which means we've
got to use AI more effectivelyin pretty much everything that
we do, for example.
So I think that's another majortrend for the industry to focus
in on.
SPEAKER_02 (31:15):
Credit unions are wrestling with AI.
A question I ask a credit union,a credit union will say, oh,
we've got this new AIinitiative, blah, blah, blah.
I say, what impact is that goingto have on staffing?
And what they always say isnone.
And in my mind, I think, well,there's going to be an impact.
There has to be an impact onstaffing.
(31:36):
There simply must be.
A lot of credit unions areoperating in a world of delusion
about that.
They don't want to acknowledgethat the machine will take some
jobs, period.
Furthermore, you need money topay for the machine.
It's not free.
ChatGPT doesn't do this work forfree.
What I'm about to say mightsound like a political question.
(31:56):
I'm asking you as an economist,not political.
The current administration seemsto me to be reshaping or
attempting to reshape the globaleconomy, the global economic
relationships on veryfundamental levels.
What does that do to aneconomist's ability to make
(32:17):
predictions?
I mean, we're seeing a level ofchange that I don't think has
ever occurred in my lifetime.
A desire for a level of changethat's never occurred.
UNKNOWN (32:29):
Yeah.
SPEAKER_01 (32:29):
The world is never stagnant, but there are also
times of major change.
And it's interesting, there's anumber of different sociologists
slash economists and otherpeople have talked about the big
cycle being about 80 years.
And it is interesting because ifyou look at where we are today,
(32:49):
it's 80 years from the end ofWorld War II.
And I think that was asignificant change.
And then 80 years before thatwas the Civil War.
And then 80 years before thatwas the Revolutionary War, so
you see these things happeningin 80-year cycles.
I'm not saying that
SPEAKER_02 (33:04):
that— And earlier you said that basically the
economy that sprung up in Europepost-World War II, which we
assisted in, that set that worldorder for a while.
Yeah, it did.
It did.
And that's now being undone, Ithink, or at least there seems
to be an effort to undo it.
SPEAKER_01 (33:26):
It is.
It's different.
I think the argument that's madeabout the economy that came out
of World War II was that it wasdone very purposefully, which
was to help rebuild, especiallyWestern Europe, you know,
against the Soviet Union,against the potential predation
(33:46):
of the Soviet Union.
And so you wanted to rebuildthose economies in Western
Europe as quickly as possible.
The United States economy isvery strong.
We could afford to hurtourselves in terms of the
export.
We'll make our exports verycostly and make imports very
cheap for us, which is exactlywhat we did.
But what the long-term effect ofthat– in the argument is is that
(34:10):
what that did is it hauled outthe middle class because
ultimately it drovemanufacturing from places like
in the midwest to places likeyou know uh in asia right for
example you know china anotherjapan first japan you know
remember that in the 1980s andthen you know china after that,
(34:30):
or other parts of SoutheastAsia.
So the notion is that in thiseconomy, what we did is we
followed out the middle class.
The upper class gotextraordinarily rich because
international trade is verylucrative, but the middle class
was really hurt by this.
And that's a little bit of wherewe are today.
(34:51):
I mean, I think the, and again,not to be political at all, but
I think when you look at Thephenomenon of Trump, I think
it's more of a result of not acause of things that are
happening.
I think the success of DonaldTrump in being elected both in
2016 and 2024 was because of thesituation that we were in and
(35:14):
the things that he was talkingabout.
He didn't create those things.
They were already happening.
And then the response of theAmerican population was to vote
for him because he representedchange in their minds, a
movement away from a system thatwasn't working for the middle
class as well as it had.
(35:35):
So I think that paradigm shiftis underway.
What it exactly will be, it'shard to know because I think
we're only at the beginning ofthe change.
SPEAKER_02 (35:47):
If the change is of the magnitude that I think it's
hoped to be, we're really justat the beginning, and there's no
charting where it's going to go.
This is uncharted territory.
SPEAKER_01 (36:03):
You look at other trends that are happening both
internationally as well asdomestically, things like
population.
You know, places like China,places like Japan, places like
most of Western Europe, noteverywhere, but a lot of parts
of Western Europe have apopulation dearth coming.
(36:26):
There have not been nearlyenough births to replace the
population that's, you know,moving into old age.
And so what you've got iseconomies that are
extraordinarily, you know,they're extraordinarily
precarious.
You know, like, for example,China is trying to keep the
second up there, you know, whatthey might call the economic
(36:47):
miracle going, but they don'thave enough of their own
population to be able to supportthe strong growth.
And so they really are dependentupon exports.
And so what does the impact ofhigher tariffs and restrictions
on goods coming in have on them,especially when the number one
market is the United States,right?
So you have all these kinds ofthings that are interplaying.
(37:10):
And so it creates a lot ofuncertainty out there.
And I think that's the otherthing is that for everyone who's
running any organization,whether it's accrediting or
anything else, you have tounderstand that there's two
things.
There's a lot more uncertaintynow than there's probably been
at any point in most of ourlives.
(37:31):
That's point number one.
And point number two, there'salso a lot more volatility.
So the changes that could happencould be very difficult big
changes.
They're not just subtle changesat the margins, but you could
see bigger changes happeningoverall.
For example, I'm not sayingChina's going to fail, but there
are some people who are sayingChina's going to fail.
(37:55):
They're so broke, they've got somuch debt in that economy that
it's a not sustainablesituation.
I'm not saying that's true, butI'm saying if something like
that were to happen, you realizethe impact that it has on the
world.
It's really hugely significant.
Also, you know, you think aboutU.S.
debt,$37 trillion worth of U.S.
(38:15):
debt.
You know, the number one, otherthan our own domestic buyers of
our debt, the number one buyerof our debt is Japan.
Japan is a rapidly agingpopulation, rate savers, but a
rapidly aging population.
rapidly aging population andthey won't be able to buy our
(38:36):
debt the same way because alltheir people are moving into
retirement and they have tostart using that money to live
on.
So you have all these variousinteresting patterns that are
emerging out here that are goingto impact things in a pretty
significant way.
It's very different.
It's going to be very differenteconomically in
SPEAKER_02 (38:55):
the future than it is now.
Over the years, I've talked witha number of CEOs of Fortune 50
companies, very big companies.
And one thing I learned is thatthey think they can deal with
anything, but the one thing theyhate to deal with is
uncertainty.
If you say, this is going tohappen, oh, well, I'll come up
(39:16):
with a plan for that.
Yeah, no problem.
And they're serious.
They're confident.
But if you say, well, here's thedeal.
You can't know what's going tohappen.
Oh, my heavens, this would beterrible.
We're kind of in that situationnow.
It's like, gee, what's going tohappen?
I don't know.
Yeah.
SPEAKER_01 (39:34):
Yeah, I agree.
I don't think we really know.
And that's where it makes,that's where what you want to
have is you want to have a, youwant to have an operating plan
as an organization that could,that will be successful in many
different types of environments.
You know, for a credit union,you want to think, I want to be
(39:57):
able to be successful in ahigh-rate environment or a
low-rate environment.
I want to be able to besuccessful in a you know,
booming economy or an economythat's going bust.
I want to be able to besuccessful in a place where, you
know, technology is reallytaking off or where technology
is kind of, not stalled, but,you know, it hasn't proven out
(40:21):
to be the same moon as maybe,you know, it was all
anticipated.
And so I think you really haveto be You have to be much more,
you have to give your, you haveto really look at and build out
a model that works across a widevariety of potential situations
that you might find yourself in.
(40:41):
And that's not easy to do.
It's a very difficult thing todo.
SPEAKER_02 (40:45):
That's the best thing you've said today.
You said a lot of good things,but I love that one.
That the credit union CEO andexecutives that need to come up
with a flexible plan.
that can deal with variouseconomic outcomes.
Not easy to do, but it's awonderful goal and it's probably
a necessary goal given that noone knows what the hell's gonna
(41:06):
happen.
It's very perplexing right now.
Before we go, think hard abouthow you can help support this
podcast so we can do moreinterviews with more thoughtful
leaders in the credit unionworld.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
(41:28):
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
It's my hope it won't all bemedical banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
(41:49):
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
We want your support.
We thank you for your support.
The CU2.0 Podcast.
Popular Podcasts
My Favorite Murder with Karen Kilgariff and Georgia Hardstark
My Favorite Murder is a true crime comedy podcast hosted by Karen Kilgariff and Georgia Hardstark. Each week, Karen and Georgia share compelling true crimes and hometown stories from friends and listeners. Since MFM launched in January of 2016, Karen and Georgia have shared their lifelong interest in true crime and have covered stories of infamous serial killers like the Night Stalker, mysterious cold cases, captivating cults, incredible survivor stories and important events from history like the Tulsa race massacre of 1921. My Favorite Murder is part of the Exactly Right podcast network that provides a platform for bold, creative voices to bring to life provocative, entertaining and relatable stories for audiences everywhere. The Exactly Right roster of podcasts covers a variety of topics including historic true crime, comedic interviews and news, science, pop culture and more. Podcasts on the network include Buried Bones with Kate Winkler Dawson and Paul Holes, That's Messed Up: An SVU Podcast, This Podcast Will Kill You, Bananas and more.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com