March 16, 2020

The Case for Automated Financial Wellness Programs in Banking

Written by Rachel Hirshfeld

What is Financial Wellness?

Each and every one of us hopes to one day feel financially secure. Like emotional, physical and occupational wellness, financial wellness is not a cliché or feel-good buzzword, it is a vital concept that all too many people often ignore.

Simply put, financial wellness is the ability to lead a healthy financial life.

It means:

• Your debts are payable;
• You have ample emergency, college and retirement funds;
• You’re well prepared to handle a financial crisis;
• And you feel good about your financial health – now and in the future.

Financial Finesse further defines financial wellness as a state of well-being where an individual has achieved minimal financial stress, established a strong financial foundation and created an ongoing plan to help reach future financial goals.

Why It Matters

By now, the often-cited statistic that 40% of U.S. adults could not cover an unexpected $400 emergency expense has become ingrained in our minds. The fact that 54% of adults in the UK aren’t confident that they could handle unexpected expenses is similarly difficult to forget.

It is no surprise that the Stress in America Survey revealed that money continues to be a top source of stress for Americans.

Ally Bank’s President of Consumer and Commercial Banking Products, Diane Morais, highlighted this point, noting that many people feel financially “stuck and overwhelmed” when it comes to managing their finances.

Financial wellness matters because it is just that: wellness – yours and your family’s.

If not treated properly, financial stress and anxiety could have far reaching implications, including stress-related illness, decreased productivity at work, marital discord and depression.

Banks are in an optimal position to offer customers automated financial wellness programs that can spearhead their abilities to save and manage debt.

The banks that leverage artificial intelligence, machine learning, and predictive analytics will help customers build healthy money management habits. Banks with a good financial well-being strategy will ultimately increase the life-time value of those customers through engagement, loyalty, and share of wallet.

The Three Facets of Financial Well Being:

1. Access to finance – Everyone needs it.

This refers to access to credit, deposit, payment, insurance, and other risk management services. While ideally everyone should have the same access to financial services, affluent individuals are unsurprisingly prioritized. Unfortunately, those who need it most – the very people who would not be able to cover an unexpected $400 emergency — generally have less access, leading to increased inequality and diminished financial growth.

2. Manage financial stress – Stress, in all its forms, is hard to deal with.

Stress management, therefore, is not something you can do occasionally. It is ongoing and habitual. Whether it is doing yoga, going to the gym, or speaking to a therapist, you incorporate stress management into your daily life in order to feel happier, more productive and fulfilled.

Take this example: if you go to the gym once every six months, the chances that you will see tangible results the next time you get on the scale or look in the mirror are slim to none. Similarly, if you only care to save once every six months, you likely will not be pleasantly surprised the next time you look at your savings account. Managing your financial stress, like managing your emotional stress, needs to become a habit – ingrained in your daily routine.

3. Achieve financial goals – One of the most effective ways to make financial journeys successful is “the nudge,” a personalized and actionable tip that enables customers to make the right financial decisions. Pioneered by Nobel Prize-winning economist Richard Thaler, the “nudge theory” recognizes that people are predisposed to take the easiest route, or no route at all, even when it puts their financial wellbeing at risk.

In the context of everyday banking, a “nudge” or financial “insight” offer stand-alone bite-sized pieces of information that proactively and effortlessly help customers make the right financial decisions in real-time. Financial “insights” include alerting customers when they have enough money in their checking accounts to automatically transfer over to their savings accounts, or to save for an unexpected expense that is due the following month.

Data-driven, personalized and proactive financial insights offer customers tangible ways to reach financial wellness, while increasing a bank’s ROI through increased customer engagement, retention and loyalty.

Watch the webinar on-demand, “Automated Financial Wellness Programs as Anchors for Customer Engagement, Retention and ROI” on March 25th at 11:00 EST to learn more about how your bank can lead customers on a journey toward financial wellness.