NB Financial Health
Three Reasons Financial Health Matters – And Not Just for the Underserved
Editor’s note: Throughout 2017, NextBillion is organizing content around a monthly theme, dedicating special attention to a specific sector alongside our broader coverage. This post is part of our focus on financial inclusion for the month of June.
If you’re a regular reader of NextBillion, you know the stat: More than half of Americans are struggling financially. But what can we do about it? What role can each of us play in improving the financial health story of many Americans? I would argue that we can begin by telling it.
Each year on #FinHealthMatters Day, the Center for Financial Services Innovation (CFSI) calls for a thunderclap of noise around financial health to bring together consumers, providers and other stakeholders to spread a message about the importance of financial health. Bloggers get busy blogging, social media types amplify like crazy and last year that amounted to some 9 million impressions. But what do all that noise, and all those stories, actually tell us?
Financial health matters to consumers
Forty-three percent of Americans struggle to pay bills and make credit payments. Twenty-three percent of households cannot save because their expenses are more than their income. With these types of challenges, managing their day-to-day financial lives becomes even more challenging and directly affects an individual’s ability to build resilience and pursue long-term opportunities. For underserved consumers trying to navigate their financial lives, it is also expensive. CFSI’s 2016 Financially Underserved Market Size Study found that underserved Americans spent $141 billion in fees and interest to meet their financial needs. Having access to better, more innovative financial products has the potential to make a substantial positive impact on consumer financial health.
There are a variety of fintech companies and incumbents working to solve consumer financial health challenges today. The Financial Solutions Lab at CFSI has worked with many early-stage innovations that leverage technology to help Americans plan for and weather financial shocks, as well as to better manage income volatility and help improve access to financial products overall. Tech giant Google now has a section in its Play store called Improve Your Financial Health, where Android users can download apps that “enable millions of people around the globe who have limited or no access to basic financial services to manage their day-to-day finances.” And many providers are offering customers free access to their credit scores, along with tools that can help them better monitor their financial health. But clearly there’s room for improvement.
Financial health matters to employers
When employees report that financial stress can lead to an inability to focus at work, increased absences and decreased on-the-job morale, and that consequences related to physical health and financial health challenges affect workers at all salary levels, this issue needs to be addressed by employers. Notably, 23 percent of workers making $50,000 to $99,999 (annually) are living paycheck-to-paycheck. Employers need financially healthy employees to create more productive, positive workplaces.
There’s a very real opportunity for employers to help improve financial health. They can curb the cost of financially stressed employees by supporting worker needs – across spending, saving, borrowing and planning – through benefits, wellness programs, compensation and other policies. For example, DoubleNet Pay is an automated solution that can track employee bills and schedule payments around their payment cycle, and direct earnings towards saving goals. And Even is a tech company that can help workers by providing them with more consistent earnings through its app that monitors average pay and smooths spikes or dips. By incorporating a financial wellness program that is comprehensive, employers are better suited to build a culture of employee retention and satisfaction, improve their bottom line and promote a distinguishing benefit when seeking new talent.
Financial health matters to providers
In order to thrive, banks, credit unions and other providers need to foster satisfied, long-term and loyal customers. Adopting a financial health framework around how consumers spend, save, borrow and plan can allow providers to do just that by investing in customers’ financial well-being, while creating responsible and sustainable profits over time. When 27 percent of Americans remain un- or under-banked, and even more are financially unhealthy, providers have a wide target in helping consumers better manage day-to-day, build resilience and pursue opportunities.
In order to improve the financial health of their customers, providers need to be able to measure it. CFSI created eight indicators of financial health that can help providers get started. These indicators can be used to add positive financial health outcomes for customers to the success metrics of the business. Measurement can also be used as a guide to orient a business around financial health, deliver on a strong financial health strategy and ultimately improve financial health. After establishing a baseline understanding of their customers’ overall financial health, providers can match customers with products and services that are best suited to improve or maintain their individual financial health, and track the success of these interventions over time.
Financial health matters to all of us. Join CFSI and other mission-based organizations in telling your story today (June 27) for #FinHealthMatters Day – and let the world know what you are doing to improve financial health for all of us.
Theresa Schmall is a Senior Associate at the Center for Financial Services Innovation.