May 8th, 2005

Banks Are Heading Back to School; Credit Unions, Big Players Are Establishing Branches For Students of All Ages

By Jennifer Saranow
Wall Street Journal

In an effort to reach young savers and spenders, a growing number of banks and credit unions are opening branches in high schools—some even in middle and elementary schools.

The ventures range from simple setups such as tables once a week in cafeterias to small-scale offices complete with tellers—some of them students—and neon bank signs. Many of the branches offer savings and checking accounts along with debit cards.

Most of the in-school branches are from credit unions and community banks that are looking to stay competitive by attracting more local customers. There are about 150 credit-union branches in high schools now, up from 100 in the fall of 2003, according to the Credit Union National Association. But some big banks are going back to school, too. This year, SunTrust Banks Inc. of Atlanta opened branches at an area high school and middle school, bringing its total number of “youth banks” to nine. Four of those banks are at elementary schools and the bank plans to open another one at a high school this fall.

Wells Fargo & Co. has operated a branch at East High School in Anchorage, Alaska, since 2000 and is in discussions on opening a branch at a Denver high school.

The move into schools marks financial institutions’ recent push to build branch networks, which has accelerated over the past five years. Banks had previously closed offices in the belief that customers would do their banking at ATMs and online, which involve little infrastructure costs. Customers, however, were reluctant to give up the branch experience.

“This is just one tactic financial institutions are using to generate more accounts,” says Chris Gill, a senior consultant with Dove Consulting, a Boston financial-services consulting firm.

The branches are a sign that banks are recognizing children’s spending power.  Teenage Research Unlimited, a Northbrook, Ill., market-research firm, estimates that teens spent $169 billion in 2004, up 38% since 1997. According to a recent Teenage Research survey, about 62% of individuals ages 12 to 19 years old, have a savings account, but only 22% have a checking account and 17% have a debit card.

Some branches are part of educational or community-development efforts on the part of the financial institutions, which are looking to develop financial literacy in kids or in some instance—such as in poor or immigrant neighborhoods— their parents. In Chicago, Park Federal Savings Bank is working with the Sargent Shriver National Center on Poverty Law, a Chicago nonprofit organization, to open next month a branch at Curie Metropolitan High School on the city’s South Side, an area with a large Hispanic and African-American population. In Denver, the nonprofit MicroBusiness Development Corp. is in talks with both Wells Fargo and Colorado’s Heritage Bank to build a student- run branch at Manual High School, in one of the city’s poorest immigrant areas.

Parent and consumer groups, however, worry about such incursions. Financial literacy doesn’t need to be tied to actual banks, says Gary Ruskin, executive director of Commercial Alert, a Portland nonprofit that aims to curb commercialization.  “This is just another step of turning schools into shopping malls,” he says.

The institutions hope that by introducing themselves to school-age children, they will gain loyal customers at an early age. Robert Allen, president and chief executive of Teachers Federal Credit Union, says students who “open accounts with us are more likely to continue with us when they come out of high school.” The credit union has seven branches at Suffolk County, N.Y., high schools, including two opened this year.

Generally, the agreements between financial institutions and schools involve the school providing space in exchange for the bank paying for setting up the branch. In addition to hiring and paying the school’s students, Park Federal is investing more than $50,000 to construct the branch and train the student bankers. In some instances, banks pay a small amount of rent. Park Federal will pay $1 a year in rent for the school’s space since the Curie school branch isn’t expected to be immediately profitable but rather to build deposits and profitability over time.

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