Increased automation, artificial intelligence (AI) and innovative service options are promising personalized financial health services to every financial consumer. The perceived degree of financial confidence can engage many, especially those who seek progress. Yet, not everyone is motivated to improve their financial health. As the CEO of a financial education technology firm, I believe that health choices and financial choices have commonalities that represent our human tendencies to meet daily pressures with quick fixes.
We need to create personalized financial health services to address this tendency.
The financial services industry, by my observation, has become fragmented since internet competitors entered the scene. Customers can scan multiple sources of financial information in minutes from a smartphone or computer. I believe the key for technology-based finance tools is to simultaneously address the needs and behaviors of those who hold the wealth and the vastly different needs and behaviors of those who are inheriting it. Financial institutions that have not adapted to meet these needs may face the consequences of watching millions in generational wealth walk out the door. Not all is bleak, as it seems that complacency is waning and more financial consumers are seeking to improve their financial health by accessing financial services such as online education, budgeting platforms and applications that deliver enhanced, personalized experiences and progress.
This need is particularly relevant now.
Although many people have spent the past 10 years climbing out of the Great Recession, what some call one of the worst recessions since the Great Depression, there seems to be more effort placed in effective health access than financial wellness. The health industry has been well-organized around measuring access and wellness. After all, lives depend on this. But from my perspective, there is a large correlation between personal health and financial health. Concluding that the quality of health care has improved over the last decade may be debated; however, life expectancy has increased on the global level, according to data compiled by the Institute for Health Metrics and Evaluation. This can lead to the question, “Is financial preparedness calculated and scored based on longer, healthier lives?” Additionally, how is financial health calculated based on more inclusive or personal factors?
There is a hopeful future for financial health.
For financial institutions, the “go it alone” approach of the past is no longer viable. Recent strains on consumers’ trust of financial institutions have increased due to numerous ethical, service or process missteps. A well-known example is the Lehman Brothers’ use of cosmetic accounting tricks like “Repo 105” that were exposed by the subprime mortgage crisis. In a 2016 study conducted by Facebook of those aged 18–34, analysts found that just 8% of those surveyed trust financial institutions to provide financial guidance. Yet I believe the aim to empower clients and improve financial health is taking center stage. This is crucial, as the Economic Policy Institute reported in 2018 that the wealth gap has steadily widened in most states since the Great Recession.
Furthermore, it seems that corporate and nonprofit organizations continue to seek new ways to support financial health and inclusion within their work environments. Some institutions, for example, are creating communities that genuinely seek to innovate the financial experience and generate upward mobility. Others measure their members’ financial health with an aim to tailor services to improve the health of their operations. In a 2015 research report (registration required), researchers from the Center for Financial Security at the University of Wisconsin concluded that educating financial employees can result in retirement contributions that are about 40% higher, as well as improved financial knowledge. Altogether, the collaboration between multi-industry experts has promising potential.
Personalized experience is a holistic financial solution.
Financial wellness scores can measure many factors, which include transactional activity, financial knowledge, capacity for financial growth, and emotional impact of financial status. Life stages can impact and skew variances in these scores. Additionally, various cultures perceive the financial industry and their relationship to money in different ways. This then brings up an interesting question: Is there a conclusive measurement for financial inclusion, financial health and real economic prosperity? If yes, then how can that be measured if economic happiness differs?
As the Dalai Lama was famously purported to say: “We all aspire to happiness and shun suffering.” Yet we all have varying feelings about money. Our national interest in financial progress can naturally be expected to differ within generations, socioeconomic backgrounds and cultures. Our values tend to drive how we may choose to discuss or ignore financial conversations. To establish a baseline, I believe we should create a financial health score that includes a clear understanding of cultural roots. Those multiple and holistic factors can impact and improve personalized planning across diverse financial stages.
To visualize this, consider the example of the financial literacy and priorities of a 32-year-old single mother working as an assistant store manager. She may make many financial transactions, have midrange financial knowledge and have a modest capacity for financial growth. Her financial status likely has a great deal of emotional impact. Compare that mother to an 82-year-old retired accountant. He makes far fewer transactions due to his life stage, but his knowledge and capacity for financial growth may also be far higher than the working parent’s due to experience and industry with a similarly strong connection between financial and emotional health.
One can see how factors like generation, economic status and values can impact and must be considered in the development of financial health tools.
Technology can help create personalized experiences.
The combination of behavioral and economic psychology, machine learning techniques and AI can be used to form assessments that measure a holistic financial health score. I believe that the innovative use of technology to monitor interventions for financial health could provide a more effective means of measuring how access to financial services and education leads to progress. The implications of these decisions could help financial progress, which I believe is the reason I’ve seen many forward-thinking financial institutions implementing or updating systems for action-based financial wellness.
For example, a financial consumer that participated in an online financial education service would have the opportunity to increase their overall financial competency score and take action to prepare for retirement, diversify their investments or open a savings account. Through a blended approach that uses online and personalized coaching services, the financial industry can prove it is genuinely aimed at delivering financial vitality.