As part of a cross-sector push to improve consumer financial health, financial institutions will need to prioritize creating products and services that help vulnerable customers and commit to measurement and sharing best practices, Federal Reserve Governor Michael Barr said.
During a speech in Atlanta yesterday, Barr noted that financial access has grown thanks to efforts such as the Bank On initiative, a public-private partnership that provides affordable bank accounts to low-income individuals. Still, access alone is not enough, as less than a third of Americans report feeling “financially healthy,” he said.
“Simply having a bank account does not mean a consumer’s financial needs are being served effectively,” Barr said. “This is why measurement of financial health outcomes matters; it helps us understand not just whether people have access, but whether that access is delivering real value.”
New tools, new opportunities
Financial institutions that are the “most advanced” in adopting financial health measures are enjoying promising benefits for both themselves and consumers, such as positive trends in consumer credit scores, he said.
“These measures allow firms to identify not only whether financially vulnerable customers are using products designed for them, but whether they are actually benefiting — enabling firms to modify products when needed,” Barr said. “These measures are also powering consumer-facing tools, such as alerts that give customers time to respond before they face overdrafts or other problems.”
Still, all players in the financial ecosystem need to play a part in improving financial health, he said. Financial institutions should commit to measurement and sharing best practices. Vendors and technology providers need to enable measurement through data portability and standardization. Nonprofits can provide financial education and connect people to trusted providers with products that meet their needs.
“We have the data infrastructure, analytical tools and behavioral insights to measure and meaningfully improve financial health at scale,” he said. “The question is not whether to embrace these tools, but how to ensure they deliver on their promise.”
