Financial wellness is a trending priority among business managers, policy makers, financial institutions, consultancies, entrepreneurs and, not least, consumers themselves. In fact, we created Decision Fish to build scalable tools that help people achieve financial wellness. What really is financial wellness, and how are the parties above working to promote it in the US (and Canada)?
I attended the EMERGE Financial Health forum in Austin, hosted by Center for Financial Services Innovation (CFSI) to answer these questions. I was also hoping to find an enlightened corporate partner to pilot our beta, when it’s ready. Here are the highlights of what I learned:
The Business Case for FinHealth. We discussed CFSI’s six steps to financial health:
- Orient—the financial health of one’s employees & customers inspires them “to be their best” and is integral to shared value creation.
- Align—companies have an “obligation and duty” to their employees
- Diagnose—figure out what customers need and create a “big, hairy, audacious goal” to transform the organization
- Design—use human-centered design principles such that client needs drive rapid prototyping and learning
- Deliver—55% of adults lack confidence in their financial future and 71% want to address that. To that end, Key Bank has invested heavily in financial wellness for customers, including its recently announced purchase of HelloWallet
- Track—Financial wellness should be incorporated in the organization’s Key Performance Indicators.
Secrets of the Financial Diaries. One of the book’s authors, Rachel Schneider, summarized the findings. Over decades, there has been a secular shift in risk from employers to employees: pension have been replaced by self-directed 401(k)s and IRAs. Fixed hours have been replaced by variable. Good, middle class jobs have disappeared while the college education that the middle class has used to get ahead has become more out of reach. This precariousness makes it harder for the middle class to take the kinds of voluntary risks, such as investing in education and financial markets, that is necessary for wealth creation.
Getting to Know the New Middle Class. I learned that people who use check cashing services have good reasons to do so: these services have lower and more transparent fees as well as better customer service than banks do. The speaker from Citibank complained that regulations and capital requirements prevent his bank from lending more to the poor.
What Business are You In? The CEO of CFSI, Jennifer Tescher, noted that our financial lives can’t be distinguished from our whole lived experiences. Consequently, the financial wellness of customers is integral to many businesses, especially financial institutions’. She offered her organization’s definition of financial wellness, which differs from the CFPB’s.
Local Perspectives. For many, “financial health is the biggest barrier to living the life that you want to live.” Financial institutions were encouraged to focus first on the financial health of their own employees’ before customers’. This improves employee performance and provides an opportunity to test new initiatives internally, before offering them to customers.
Is Universal Basic Income the Next “It” Thing? Elizabeth Rhodes from Y-Combinator discussed their work on the Universal Basic Income concept. She said that economic insecurity prevents people from going for opportunities that could make them more secure. UBI would increase stability and risk-taking and avoid the stigma of government safety-net programs because the benefit accrues to everyone.
Why Financial Health is the Next Big KPI. Walmart is working on financial health because it believes that it will improve the customers’ experience if employees are financially well. Further, according to AON research, many companies are offering financial health benefits because “it’s the right thing to do”. Yodlee shared findings that 1/3 of their users spend more than they earn and that even ten percent of those with incomes over $100k live paycheck-to-paycheck. Lendstreet shared that users don’t want an app to tell them that they can’t spend, but will accept advice from peers.
Bridging the Divide Between Corporate and Social Good: I learned that most venture capital exits from social impact businesses like TIO are by strategic acquisition (and not IPO), according to Core Innovation Capital’s Arjan Schutte. Pru’s Lata Reddy affirmed her company does not consider Corporate Social Responsibility (CSR) a trade-off versus profits, but rather core to how they make money.
Turning 76 Billion Transactions into Insights. Fiona Greig, the Consumer Research Director at the JP Morgan Chase Institute explained how, in their dataset, many families experience thirty percent swings in both income and expenses. She told me later that income and expenses are only slightly correlated, so it happens often that expenses spike when income dips, causing stress and potentially a cycle of debt and stress. She displayed a disconcerting chart (below) indicating that while people try to save up for a major medical expense, most families’ balance sheets don’t recover within 12 months. Her findings highlight the need for liquid savings for emergencies.
Big Idea: Disrupt or Be Disrupted. Stephen Sherr, the CEO of GS bank, discussed Marcus: by Goldman Sachs, their online consumer lending business. Their competitive advantage over others is that they don’t securitize and resell the loans they make to investors. This allows them to tailor terms like payment dates, maturity dates, and the option to skip a month, to the needs of customers. They also believe their risk expertise is an edge. Finally, they are trying to “destigmatize” debt. Their home page offers, “Debt Happens. It’s how you get out that counts.” (This seemed self-serving to me: is there any evidence that the US would be better off if it were more tolerant of debt?)
A Nice Change. After a career of bankers’ conferences, this event was a breath of fresh air. I found the people I met not exactly idealistic, but realistically mission-driven and deeply engaged in improving the lives of those facing financial challenges. It’s too soon to tell whether any of the relationships I formed will help us find a company to pilot Decision Fish’s financial health tools. Regardless, I came away with greater confidence that financial wellness is building momentum and that we are in the right place at the right time.
Decision Fish Wants You!
We’re building a fun, online financial wellness program. We are looking for a few people willing to try it out for free, even before it’s available to the public. Work at a company that should offer a financial wellness benefit? Contact us or forward this to a friend using the share buttons below.
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