Vice President, Financial Health Network
Financial institutions can help consumers who are struggling to spend, save, borrow, and plan by focusing on bettering financial health.
How is your financial health? Chances are it could be better. According to the Financial Health Network 2021 Financial Health Pulse, more than two-thirds of people in America are still not financially healthy, with particular challenges facing women, LGBTQ+ communities, and people with disabilities and inequities remain by race and gender. The majority of us are struggling to spend, save, borrow, or plan in ways that allow us to be resilient and seize opportunities over time. Last year many people’s financial health actually improved slightly — stimulus checks and other aid from the government helped — but it’s hard to deny that going into 2022 and beyond we could use more help with our money.
We need innovations and lower fees
The good news is that banks — both big and small — are taking steps to keep more money in your pocket. For starters, we are seeing many traditional fees, like overdraft or insufficient fund fees, go away. Those fees have disproportionately hit households least able to afford it. But fees are just the tip of the iceberg.
Personal financial decisions are complex. Should you put money into an emergency savings account or pay off debt? Maybe refinance your mortgage? We need innovative solutions that are specifically designed to help us succeed. One of the most critical financial health needs consumers have is help building savings. In 2021, 39 percent of people did not have enough savings to cover even three months of living expenses. We all know we should save more, but it can be exceedingly hard in the face of mounting bills and stagnant or inconsistent wages.
Banks and fintechs take on financial health
New tech-based banking companies (aka neobanks) and money apps have been stepping up to the challenge. Unlike traditional banks, they have much less overhead so they can innovate quickly. These fintechs are also focusing in specific areas of money management, and using data and algorithms to help you make better decisions (think Netflix recommendations but for your money). For example, some apps can tell you when it’s ‘safe to spend,’ optimize your savings decisions, and help you build credit. A non-profit fintech can helps you build financial security. They launched and tested a savings competition that rewarded users for making progress toward a $500 savings goal. The competition increased the number of people who saved by 6 percent and increased average savings by $451 over six months.
Many traditional institutions have caught up and are now designing for consumer needs and testing their effectiveness. For example, a large credit union recently tested an app feature designed to make saving easy with a group of customers. This app lets users easily move money into their savings with one swipe. It has helped people with low savings increase their balances by 17 percent on average.
While their solutions are different, one thing that unites these financial institutions — they are putting consumer financial health at the center of their business. Not only that, they are measuring their, and our, success. We need our financial institutions to make our financial health the key number that they aim to increase. Our ability to manage our money — to spend, save, borrow, and plan in ways that make us resilient and able to pursue our goals — is a critical need that every financial institution, be they traditional bank, neobanks, or fintechs, should be aiming to improve.