In 2011 the NCUA started requiring directors at federal credit unions to obtain a minimum level of “financial literacy.” The purpose of this requirement is to ensure that directors understand how the credit union functions from a financial perspective, and also the risks the credit union assumes when undertaking various business operations.

While this is only a requirement for federal credit unions, it’s important for all directors at any credit union to understand the financials and risks of the credit union.

Here are some things to consider when developing a director financial literacy policy.

1. A brief explanation of the credit union’s level of risk in the areas of credit risk, interest rate risk, liquidity risk, transaction risk (internal controls), strategic risk, reputation risk, concentration risk, and growth rate risk. This section would also specify your credit union’s level of complexity.
2. A recommended level of director knowledge and education in the areas of financial literacy and risk and courses or educational opportunities available to meet these needs. The level would be commensurate with the size and complexity of your credit union.
3. Funding level for director education.
4. A stipulation that an educational plan will be developed for each director which identifies past education and experience (e.g. CPA, MBA, relevant work experience, etc.) that satisfies this requirement and, as necessary, provide the director with appropriate financial literacy education.
5. A provision that new directors (at the time of election/appointment, or within a reasonable time thereafter – not to exceed six months) will obtain at least a working familiarity with basic finance and accounting practices, including the ability to read and understand the credit union’s balance sheet and income statements and to ask appropriate, substantive questions of management and internal/external auditors.

 Resources

• Financial ratio reports from the association: The Utah Credit Union Association can provide you and your board with an analysis of your credit union’s financials and ratios, free of charge. Contact Stephen Nelson at sn@utahscreditunions.org, or 801-243-3118.
• CU Analyzer: this online tool allows you to examine your financial ratios and compare them to peers. Free to use for all Association credit unions. Contact Stephen Nelson at sn@utahscreditunions.org, or 801-243-3118.
• Financial Literacy for Board Members Webinar, presented by Stephen Nelson on June 20, 2024.
  • Slides
  • Webinar recording part 1
  • Webinar recording part 2