As much impact that fintech has had on financial services in the past decade people still continue to make poor financial decisions. While it is great that consumers can now refinance their credit card debt or student loans to a lower rate this is not making much of a dent in the overall financial health of consumers.
Credit card debt continues to rise to record levels of over $1 trillion in balances outstanding according to the Federal Reserve. Outstanding student loans are now close to $1.5 trillion continuing a staggering rise over the past decade. The national savings rate is now back down almost to its record low set in 2005. We are borrowing more and saving less. And we seem to be blissfully unaware of the challenges this may bring to our lives.
We Don’t Need No Education
I have many friends who are not the least bit interested in finance. They go about their lives in ignorance of the some of the most basic tenets of finance. A few years ago I had a highly educated friend try to convince me that there was no need to ever pay off credit cards and that I should think of it more like a utility bill with a fairly constant payment, the minimum monthly balance.
We don’t teach serious personal financial management in schools so young people are left to fend for themselves or (hopefully) learn from their parents. I was lucky. In my case we talked about finance and investing regularly at the dinner table when I was growing up and it was something that always interested me a great deal.
The trouble is that when you talk about financial education most people’s eyes glaze over. It is boring and they don’t feel the need for it. Sure, they have financial challenges but they think that is just the way life is and there is little motivation to do something about it. Without delving into the psychology behind all this we need to make it easier for people to not just learn about finance but to adopt some best practices.
People Want Answers Not Education
One of the interesting trends I have been noticing recently is that more fintech companies are talking about financial health than ever before. And they are talking about it in different ways than before.
I was listening to the Breaking Banks podcast the other day and host Brett King said something that really resonated with me. He said that what people really want to know is whether or not they can afford to go out for a fancy dinner or whether they should pay down their student loans or fund their IRA. Brett was talking about this in reference to the voice activated devices like Alexa or Google Home and how they may impact financial services.
He hits on a key point. People don’t want to learn about finance they want answers that are personal and relevant to their lives.
Financial Wellness is About Changing Behavior
There are literally millions of hours of videos online around financial education. You can learn about any topic you want and most of it is free. So, education is available and plentiful but most people do not avail themselves of these great resources. So, providing better and easier education is not the answer.
Last week, an article in Tearsheet caught my attention which sums up perfectly what needs to happen to improve financial wellness:
To achieve financial health, the idea of financial education or financial literacy needs to change from one focused on gaining knowledge to one focused on changing behavior, which is more about financial capability than education. The U.S. economy today is different from that of previous generations in that products are the driving force of behavior, said Current CEO Stuart Sopp, and that calls for an overhaul in the way products are designed.
If we can change people’s behavior then maybe we can improve financial wellness. And fintech is in a great position to do this. So many companies today are focused on providing a great user experience and product design is central to this idea.
Some great examples of product-centric companies are Stash, Moven, Varo, Current and MoneyLion just to name a few. Each one of these companies is trying to change behavior by incorporating simple and elegant design delivered via a mobile app. By making their products easy and even enjoyable to use they can change behavior that will lead to better financial outcomes.
The new breed of fintech platforms have an opportunity. With advances in design, data availability, artificial intelligence and hardware capability real change can happen today. I am hopeful that my kids will grow up in a world where good financial decisions are easy as new products encourage positive financial habits. Then fintech will truly have made a dent in the universe.