By Deb Stewart
Highlighting some frightening statistics, the Center for Financial Services Innovation’s (CFSI) 2018 U.S. Financial Health Pulse reminds us of why we need to continue to work on building financial literacy with our clients.
- 47 percent of Americans say their spending equals or exceeds their income.
- 41 percent say this was because their spending was unusually high, income low or both in past 12 months.
- 26 percent say spending always exceeds income, suggesting this is a permanent state for millions of Americans.
- 36 percent of Americans are unable to pay all of their bills on time.
- 45 percent of Americans say they do not have enough savings to cover at least three months of living expenses.
- 30 percent of Americans say they have more debt than is manageable.
- 40 percent of Americans do not agree with the statement “My household plans ahead financially.”
They also showed that you cannot predict a person’s financial health based solely on income or demographics. Fifteen percent of those with a household income less than $60,000 are financially healthy, while 50 percent of those with a household income of at least $100,000 are either financially vulnerable or merely coping.
The missing link: action
The mission of CFSI is to improve financial health for all. It started more than 15 years ago with a specific focus on the unbanked and underbanked consumer, and the goal of helping organizations develop meaningful access and quality products.
John Thompson is the organization’s chief program officer. “Financial institutions should be managing toward outcomes for their customers, not just selling products,” he says. Because financial health is measurable, he adds, banks should be designing products that move the needle. “One of the things we’ve learned is that effective financial education needs to be timely, relevant [and] actionable.” He argues that in the past, financial education has not reached that ideal.
“Consumers are saying, ‘teach me and help me to act,’” Thompson says—and action has been the missing link. “We need to start breaking the concept of literacy down into searchable bite-size chunks— learning about things quickly and taking action.”
CFSI research has shown that (not surprisingly) people don’t consume financial information for fun. It’s for a purpose. And the organization has observed that the fintech sector is starting to do a better job of focusing on financial outcomes. That includes looking for a specific need in people’s lives and building solutions around those needs—linking content to action, thus “closing the loop.” In addition to providing opportunities to take action, many fintech offerings are also supporting an interconnected web of people involved in the customer’s financial life. That may involve parents, adult children, grandparents and other family members—and in some cases, friends.
Developing new tools for financial health
To support developing organizations that are committed to improving the financial health of Americans through marketplace innovations, CFSI has partnered with JP Morgan Chase to operate the Financial Solutions Lab. This program seeks to identify, test and bring to scale promising innovations that help Americans increase savings, improve credit and build assets through mentorship and financial support. These solutions may be delivered directly to consumers or through intermediaries like employers or schools. “In the past we have seen many fintechs looking to displace or disrupt banks,” Thompson says. “There is now a strong move toward collaborative models.”
Here are three examples of how fintech firms are connecting common financial literacy recommendations to tangible actions—and working with banks to do the same.
- Recommendation: You should have a will.
Most financial literacy programs encourage you to have a will, particularly if you have children. And yet, two-thirds of Americans have no will and nearly 80 percent of those 20 to 40 don’t have one. Why? Lots of reasons. It doesn’t seem urgent. It’s frightening to think about your own mortality. It seems difficult and expensive. It’s hard to decide who would take care of your kids…and people don’t know where to start.
So a prime example of financial technology that delivers clear, actionable guidance to consumers while supporting the consumer’s interconnected financial web is an app called Tomorrow. The app can be delivered to consumers directly, or in collaboration with employers, benefits brokers, banks and other financial institutions.
“The app was designed to be an easy and beautiful experience,” says Josh Heckathorn, co-founder and COO at Tomorrow. “You can literally complete your will in ten minutes sitting on your sofa, print it, and take it to a notary (there is a notary search function built into the app). We have 52 lawyers who have addressed legal differences in estate planning by state. On a direct basis, the typical user has been a 35 year old female homeowner with children. An unexpected user base has been the parents of these users! They will often start asking their parents about whether they have a will and it becomes a multi-generational experience.”
Tomorrow has seen strong growth in offering the product as an employee benefit. As part of a bank partnership, the bank can offer customers an overall financial health assessment, using the existence of a will as a part of the score. If there is no will, Tomorrow can be offered as a free benefit to customers. “We see a lot of opportunity in our conversations with banks and other providers. The app can be used with their own employees, or as a part of a standard package,” Heckathorn says. “It can be offered specifically to mass affluent customers—or it can become a sticky product for younger customers. We are addressing a real need and feel good about that.”
- Recommendation: You need to protect yourself and your family from financial fraud.
Liz Loewy was chief of the elder abuse unit in the Manhattan District Attorney’s office, overseeing about 800 elder abuse cases annually. She is now COO of EverSafe, a fraud monitoring fintech service focused on seniors and their families. “Estimates of elder fraud losses are about $37 billion annually. But only one in 44 seniors actually reports financial abuse, so the number is undoubtedly much higher,” Loewy explains.
“Why? They may be embarrassed, they may not want to report a family member who is the culprit, or they may be cognitively impaired (one in three seniors now dies with dementia) and so they don’t understand that the person calling them is not really a Nigerian prince or from the IRS.”
Many consumers who are concerned about identity theft have initiated credit monitoring. But scammers and thieves very often target depository and investment accounts. This activity is not tracked by the credit bureaus. Activity on an older credit card account is also not tracked. “Fraudsters tend to work across accounts and institutions to avoid detection. They may take $5,000 from one account, use a stolen credit card, then wire money out of an investment account—hoping to fly under the radar and avoid identification,” Loewy continues. By analyzing past behavior, Eversafe is able to detect aberrations in activity across all accounts. Suspicious activity alerts are delivered by email, text, phone or the EverSafe app to both the customer and designated loved ones or professionals.
A prime target for banks offering EverSafe is the “sandwich generation,” customers who want to keep an eye on their finances, the finances of older parents and, sometimes, young adult kids with their first credit cards. Education is a big part of EverSafe, which offers coaching to bankers on how to have conversations on various aspects of the topic across generations. Banks can offer the product as a stand-alone or as part of a private bank or investment account offering or other packaged account. Packages can target many segments—or the general population—because fraud can impact anyone. Half of reported fraud claims come from seniors and half comes from millennials, Gen Xers and baby boomers.
“Several regulatory changes are helping with the issue. The enactment of the Senior Safe Act and a number of FINRA rules focused on vulnerable adults have served to encourage financial institutions to focus on protecting seniors and reporting suspicious activity,” Loewy notes. “Ultimately enhancing analytics [and] AI/ machine learning that speed detection are the tools we need to change this story.”
- Recommendation: Your kids need to develop good financial habits early
Tanya Van Court, CEO and founder of Goalsetter, spent years leading digital development for Nickelodeon. And when she had children of her own, she wanted to teach them about money—specifically guiding them from pure consumerism to saving. The problem was that the content she found was not exciting and it was all theoretical. There was no action associated with the learning that did occur.
“Goalsetter addresses both engaging education and action. Kids and teens learn about financial planning through fun financial literacy quizzes that use memes, gifs and the language of pop stars and hip-hop artists,” Van Court explains. Compound interest, for example, is illustrated by 2Pac’s lyrics: “I’m trying to make a dollar out of 15 cents.”
Van Court elaborates: “The action part of Goalsetter is letting kids save real money towards real dreams. We often think adults are the only ones who are goal-oriented. But kids want to save for everything from concert tickets to computers to iPhones. It doesn’t matter what they save for. If we establish a savings habit for kids at eight, they are going to retain that habit at 28.”
One goal of Goalsetter is to create a financial network around the child. The platform enables parents to autosave via an FDIC-insured savings account and to “round up” their debit card swipes and purchases, contributing spare change to their kids’ goals. In addition, kids can earn allowance money, which can then be transferred to their goals. Family and friends can contribute by purchasing “GoalCards” instead of gift cards for birthdays and holidays.
“One interesting thing we’ve seen with Goalsetter is relevance to both ends of the market—from LMI [low- and moderate-income] neighborhoods to affluent parents and kids,” Van Court notes. “In partnership with Morgan Stanley, we tested providing $25 GoalCards to financial advisors to gift to their clients as well as to Morgan Stanley employees. Feedback that financial advisors received from parents was surprising. Parents had generally been unable to find ways to teach their kids about money in a real way. Employees echoed the same sentiment.”
At the LMI end of the market, Goalsetter is working with a number of cities on establishing savings programs for kids through schools. Child savings account (CSA) programs have been used by school districts in San Francisco, Oakland, Boston, New York and others to provide kindergarteners with savings accounts, often seeded with a starting deposit of $50 – $150. A Washington University study fueled much of this interest, showing that a child who has a savings account in his or her name is six times more likely to go to college. (This data was normalized for affluence.) The savings account is a signal to both the child and parent that college is a real possibility for their future.
Goalsetter’s quizzes teach key financial concepts—including having a healthy relationship with money, saving and growing wealth, understanding APR and other terms that kids need to know to be financially successful. The “pop culture” nature of the quizzes makes them fun for both children and their parents, and lessons are mapped to Jumpstart.org’s financial literacy standards to ensure that core concepts are being absorbed.
Goalsetter is currently working with banks and other financial institutions on a white-labeled version of its product. “This product is relevant to employees, customers and possibly most importantly, to the communities we serve,” Van Court says. “We are creating the next generation of savers and investors, and we look forward to using the platform to support literacy and savings initiatives through our financial service partners.”
“Teach me and help me to act.”
There are so many great opportunities to educate customers and their families to help them live stronger financial lives. How do you start? What are you key target segments? What are the pressing needs in the communities you serve? How can you help your employees thrive in their financial lives? Understand the possibilities. Prioritize and, potentially, look for partners who have established the groundwork for some of these complex solutions.
Deb Stewart is a contributing editor to ABA Bank Marketing.com. Located in Charlotte, N.C., she is an independent consultant working for the financial services industry. Email: [email protected].
