Nudging Consumers Toward Improved Financial Health


People find it challenging to manage their financial lives and they want more help and advice – a consistent theme in Expectations & Experiences, the quarterly consumer trends survey sponsored by Fiserv. More than 41 percent of respondents with children under age 18 feel they don't have as much time as they'd like to manage finances the way they want, while 48 percent of early millennials (ages 18 – 24) report "feeling lost" when managing household expenses.

These data points echo research from the Center for Financial Services Innovation (CFSI), an authority on financial health dedicated to helping financial providers implement products and practices that impact consumer behavior. This week at Fiserv Forum 2016John Thompson from CFSI spoke to an audience of financial institution CEOs about how investing in financial health benefits consumers and creates a competitive advantage for the institution. Thompson leads the Programmatic team at CFSI, including research, fintech innovation and consulting.

Financial health isn't about wealth – it's about how financial products and behaviors make life work. It's our ability to spend, save, borrow and plan for life.

The Point asked Thompson about financial health and the role of the financial services community in improving the financial lives of consumers.

How is CFSI working to improve the financial health of Americans? What role do financial institutions play in this mission?

CFSI helps providers become more than distributors of financial products – we help them become champions of financial health. Financial health is a two-way street where consumers' behaviors matter. Providers can help shape those behaviors by offering smartly designed products and tools to help consumers make the right choices. Financial services should improve consumers' lives and shift the focus to financial health.

John Thompson

What does it mean to be financially healthy?

Nearly a decade post-recession, Americans are still walking a financial tightrope: they lack financial health. According to CFSI's research, 57 percent of Americans are struggling with their financial health.

Financial health isn't about wealth – it's about how financial products and behaviors make life work. It's our ability to spend, save, borrow and plan for life.  We measure financial health through a person's ability to manage their day-to-day financial lives, ability to weather life's inevitable ups and downs, and the capacity to seize opportunities that will lead to financial security and mobility over time.

How can financial institutions benefit from understanding and addressing the needs of those who are struggling financially?

Americans today manage more complex financial lives than ever – and they certainly have more options than ever, with the proliferation of apps, websites and fintech services. Understanding where your customers are is the first step to designing services and products that will solve their financial challenges. We're not just talking about people who are struggling – this is about addressing the needs of all of your customers. We believe that great design starts with obsessing over your customers' challenges – and measuring their financial health is a tool to help you do that.

This month we released an executive summary on eight indicators to help providers measure the financial health of their customers. We believe these indicators establish a framework for shifting the financial services industry towards a focus on financial health, a focus on improving consumers' lives. In the marketplace of the future, consumers will choose providers that help them reach their financial goals. Providers that adopt these indicators will get ahead.

How does financial health impact consumers' behaviors? And how do those behaviors impact financial services?

Part of what we do a lot at CFSI is myth-busting. One of the interesting myths we've been correcting as a result of our 2014 study "Understanding and Improving Consumer Financial Health" in America is that people think financial health is just about income. That's just not true. 

Behaviors and attitudes also matter. In fact, they matter more than income. We found people up and down the income spectrum are financially unhealthy – and many low-income people are financially healthy, able to meet their short-term goals and working to achieve long-term ambitions.

One of the biggest indicators of good financial health is the habit of saving. For instance, consumers who plan ahead for large, irregular expenses are 10 times as likely to be financially healthy than those who do not.

So, we know savings behavior is important, but we also know how to insert nudges or features into financial services to help people to save. CFSI has sponsored several tests to identify when and how text messages, automatic savings or prize-linked savings can drastically increase the amount of money millions of Americans are saving. At CFSI, we combine these unique insights with investments in market innovations – and bring the results back to the marketplace for everyone to adopt.

How does fintech adoption – tools offered by financial institutions and services from startup providers – factor into the financial health equation?

The most important thing that's coming out of fintech is this: Your customers are looking elsewhere to meet their daily financial needs.

We work with companies that are learning from the best of what fintech is showing us about customer behavior and either adopting those principles or partnering with fintech companies to better serve their customer base.  We're seeing a lot of that going on right now in our network, which is open to everyone.

I'll end where I started: people want to be financially healthy, and they're looking for partners to help them get there. Providers that design their business models around customer well-being will be the winners in tomorrow's economy.

Interested in learning more? Attend today's Strategy Session at Fiserv Forum 2016, Modeling the Future of Deposits and Checking, which features insights from John Thompson.

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