Why Digital Transformation Strategies Should Address Financial Wellness

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For banks, financially healthy customers are more profitable and more loyal, sticky customers. That means that effective financial wellness programs are not only the right thing to do for customers — they can also be a powerful tool for growth, even when net interest margins are under pressure.

Consumers who understand the basics of personal finance tend to be more engaged and profitable for the financial institutions they bank with, according to a study by Raddon Research Insights. A thoughtful strategy can make financial wellness programs an important resource for the communities they serve. As a former banker who is passionate about financial wellness and the impact it has on people’s entire life, I want to share my experiences and explain what other bank leaders should consider when strategizing their institutions’ financial wellness offerings.

Rethinking Financial Wellness
First, a financial wellness initiative that resonates for one bank’s customers may not be a good fit for another bank in a different market. Yes, community banks are uniquely positioned to support customers with financial education services and other financial wellness resources. But  a bank located in a college town that primarily serves university students should approach financial wellness and education differently than a bank in an area that’s popular with retirees.

Keep in mind the market and community your bank operates in, and your bank’s budget for its financial wellness program. This makes it much easier for your team to identify the opportunities that will make the greatest impact on customers, without being distracted by the latest digital innovations that may be interesting, but not relevant, to your institution’s needs.

Beyond that, how our industry thinks about financial education needs to change. There is no shortage of content in the market that tells consumers what to do to be financially healthy — but there are very few tools and products that actively help them take steps toward a healthier financial future.

People do not engage their bank with hopes of getting a new buy now, pay later solution, a mortgage or an auto loan. They engage their bank to help them buy a home for their growing family. Or they need to buy a car for the commute to their new job. Today’s customers want their bank to help them reach these important life milestones within their household budget and unique financial situation. Personalization should be a key aspect of any financial wellness program and services that banks roll out.

Personalized Guidance Is Key
A personalized approach gives banks a way to help customers make smarter financial decisions at their exact moment of need. Understanding consumers’ savings priorities and what they are actively saving for can help banks determine where they can make the biggest impact on their customers’ financial health.

Fortunately, Plinqit’s State of Savings Report indicates that an overwhelming majority of Americans — 91% — want to grow their savings and are putting aside at least some money this year. One of the top categories for saving this year was for paying off debt, which is notably different from saving money for the future or for a planned purchase. Yet, this is no surprise, given changes in the economy have led many Americans to rack up additional debt and the Federal Reserve’s interest rate hikes that have made it more expensive to borrow. The State of Savings Report reveals that nearly half of Americans, 42%, are putting money aside to pay down their debt. This is even greater of a focus for consumers between the ages of 18 and 34.

If this group is focused on paying down debt, banks should consider how they suggest personal loans and ways to refinance credit card debt. Credit card debt was the most cited type of debt that consumers are prioritizing paying down this year.

As consumers navigate the complexities of life events, unexpected expenses and economic challenges like inflation, saving money and achieving financial wellness can sometimes feel out of reach. Knowing how much money to put toward savings goals versus debt payments, when to start saving for retirement and other important financial decisions can overwhelm consumers. Banks must meet customers wherever they are in their financial journey to offer personalized financial guidance based on their goals.

Thoughtfully planning your bank’s financial wellness and education strategy will empower your institution to establish healthy financial habits among customers while supporting your bank’s future growth.

How Banks Can Create Financially Savvy Communities

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Money is a complicated subject for many Americans, and financial literacy is often a challenge.

Financial wellness is often a personal journey that lasts a lifetime — and is a place where banks and technology can really improve people’s lives. Everyone benefits when bank customers enjoy financial wellness. People in good financial health tend to enjoy better physical and mental health, contribute more to society and pay more in taxes. But from a bank perspective, financial wellness is both a challenge to be met and an opportunity to be seized. Now is the time for institutions to pick up the pace.

Although financial wellness can be hard to define, only 22% of respondents in a recent TIAA survey described their finances as “healthy.” This is a concern because of the negative compounding effects over the long term mean that multiple generations may struggle to get on top of their finances. How can the banking industry address this potential widening gap between the rich and poor?

Financial literacy is one starting point, but only 21 states require students complete a personal finance course to graduate from high school. This is a major shortcoming – personal finance is an essential life skill. There’s no substitute for starting early.

The Money Smart financial education program from the Federal Deposit Insurance Corp. helps people of all ages enhance their financial skills and create positive banking relationships. FIS actively supports this and is helping to move this program online and embed financial education within financial products and services. But there is more work to do.

Just like physical well-being, everyone has unique goals and measures of success of financial wellness. Banks that appropriately assist customers on their financial journeys can create deep loyalty and great customer satisfaction. Personalized tools are essential to help individuals align finances with life goals, such as going to college, getting married or having a family. But ultimately, financial wellness is about making small, everyday choices about budgeting, expenses and using credit wisely. While this is never easy, technology can help.

Put Data and Technology to Work
For many people, facing up to their financial position is daunting. Financial jargon can be confusing, and the majority of individuals cannot afford a financial adviser to help navigate the complexity of securities, mutual funds, 401(k)s and the like. But, with the right digital tools and banking support, most don’t need one.

Digital technology empowers people to better understand their financial transactions by harnessing the power of data. The right analysis makes it easy to determine patterns, whether decisions are wise and if they are aligned with savings and retirement goals. Sophisticated data tools can provide insights to financial wellness and take much of the hard work out of the analysis of where customers spend money, and where there are opportunities to save. Over time, people form new financial habits that encourage easier budgeting and regular saving.

The opportunity is there for banks to become proactive and help customers make better financial decisions. With a wealth of customer financial data, banks are uniquely positioned to offer customers a guided journey to good financial health; those that do will be rewarded with loyal customers.

Financial wellness is an opportunity for every bank. It requires bankers to think creatively and collaborate, likely working with fintechs and suppliers to offer financial management services that empower customers to better manage their money. Open banking makes this easier and more affordable, and the time is right to accelerate progress.

Financial wellness and financial inclusion go hand in hand. Financial wellness tools can educate and encourage unbanked and underbanked individuals to participate in the regulated bank space. But it takes perseverance and commitment from banks to progress and earn the trust of those unfamiliar with traditional banking. Banks committed to financial wellness and inclusion must think big and start small. But the crucial thing is to start.