…and Will Likely Stay That Way
In January 2016 I founded a tech start-up help Americans make better financial decisions. I’ve since learned that most people are stressed out because they save little, have enormous debt, don’t know where their money goes and feel they’re not on track to meeting their long-term goals. I also found that the reasons for this are so deeply embedded in the political, economic, educational, behavioral and social fabric of our country; that our start-up, and perhaps any private-sector business, is unlikely to move the needle. I fear that, absent significant increases government education, regulation and stronger social safety net, we will see millennials eventually become a generation of seniors living in poverty.
My original idea was an app to help new home shoppers decide how much they could afford to spend on their home. My own experience was that banks were willing to lend me much more than I was comfortable with. So, I created a prototype that calculated a maximum recommended purchase price that still allowed the user to save ten percent of their income, after paying debt service. In testing, feedback was favorable, but users said they actually would prefer a more holistic tool that would 1) help them save for retirement; 2) guide them in budgeting and 3) invest well, along with a long list of other financial decisions.
So I gathered a small team and built a holistic life cycle model in Excel and web-app that helps people with life planning, saving and budgeting at scale and low cost. In our user testing of many prototypes, we learned that people in general are:
- Much more concerned with the present than the future and so resist setting spending limits, in part because they don’t empathize with their future selves
- Loath to make any investment that could lose money or set aside money for savings at the start of the budgeting process
- Too distracted by the overwhelming stresses, distractions and noise of daily, modern life to focus on planning and making important life decisions
- Mistrustful of financial institutions, financial technology firms and prior generations that brought them the financial crisis, climate change and a polarized, low-trust society
As a result, we found it very challenging and expensive to attract individuals to our web-application and complete the program. People seem to need external support and incentives. So, we pivoted to offering the tool and financial wellness workshops to businesses as an employee benefit. We reasoned that employers, even if they didn’t think themselves morally obligated to support their employees’ financial wellness, would do so based on enlightened self-interest. After all, if employees are stressed out and distracted by personal finances, they may be less engaged, less productive, less loyal, consume more health care and maybe even steal more pencils.
Turns out that HR managers, being human, have the same challenges that individuals do. In general, they:
- Are (reasonably) more concerned with today’s priorities; employee financial wellness just isn’t an urgent matter in most cases
- Are simply not aware of any financial distress among their employees, notwithstanding the awful, national statistics. This is may be due to the taboo over talking authentically about money
- Lack the bandwidth and risk-tolerance to co-create a financial wellness solution with a start-up
- Are generally in exploratory mode and not even close to buying a solution
Our third pivot was to lenders, banks, credit counseling agencies for whom financial wellness is integral to their business. There too, we found high hurdles:
- Credit counselors focus on folks with low incomes and are literally paid to physically sit down with people to offer short-term counseling. Longer-term financial wellness is just not part of the business model (yet)
- Some banks are offering budgeting tools but actual financial education is generally limited to classroom events because a more fulsome offering does not help them meet their regulatory requirements or generate more revenue. In fact, it could jeopardize profitable overdraft fees.
- Small dollar lenders too pay lip service to customer education but have limited bandwidth and a built-in conflict since consumers in debt is what keeps their lights on
If individuals and businesses are not prepared to address the financial health crises, that leaves nonprofits and government. However, the former lack scale and the latter is tilting towards deregulation.
Today, our original vision seems hopelessly naïve. The silver lining is we can now appreciate the scale and structure of the financial wellness crisis and support policies and politicians who will address the root causes: insufficient education, weak consumer protection and regulation; too many choices without appropriate tools to make good decisions; a system full of conflicts of interest, misinformation and lack of transparency.
This article originally appeared on February 12, 2019 on Forbes.com.