financial health Archives

An Invisible Coach for Credit Card Debt

A recent episode of the Michael Lewis podcast highlights how Tally is becoming a financial coach to truly help people out of credit card debt

May 19, 2020 By Peter Renton Leave a Comment

Michael Lewis, the bestselling author of numerous books including The Big Short, Moneyball and Liars Poker, really knows how to tell a great story. I have been a semi-regular listener of his new podcast, Against the Rules, which brings us a new format to his storytelling.

Over the last couple of weeks I have had several people reach out to me saying I needed to listen to the first episode of season two of the show. Called The Invisible Coach it is about the credit card industry and how the average consumer needs a good coach to help them make good financial decisions. So, this past weekend I gave it a listen.

Lewis follows up with Katie Hyland, a public school teacher, who we first heard from in season one as she struggled to get her student loans forgiven. In this episode he discusses the credit card debt that she and her husband amassed through some unexpected expenses. He laments the fact, in a conversation with Angela Strange of Andreessen Horowitz, that there are no financial coaches to help people like Katie Hyland make good decisions that will help reduce her credit card debt. Or are there?

A Credit Card Debt Coach

Enter fintech. Or more specifically, enter Jason Brown, CEO and Founder of Tally. In the podcast we hear a lot of background to Jason’s story, including interviews with his mother, and why he started Tally (I interviewed Jason on my podcast 18 months ago). They don’t mince words about the credit card industry, saying the industry has evolved to exploit consumers worst instincts. It reminded me what Max Levchin of Affirm had to say about credit card companies at LendIt last year, where he compared them with payday lenders. They make the terms difficult to understand and then encourage you to make decisions that are in their best interest, not yours.

The traditional credit card industry has caused an incredible amount of pain in this country. Tally conducted a research study to actually measure this pain and understand the emotional consequences of this debt. They found that the anxiety level people have about their credit card debt was a “medical level” of anxiety, as in the kind of anxiety you have when waiting for a medical diagnosis. Lewis commented that stress is not a bug in the American financial system, it is a feature.

What people really need is a good financial coach that could help them manage some of these stressful situations. Tally is that coach for credit card debt. Brown said that a good coach will help you change your behavior and they do this in three ways:

They take out all the hard work and distractions.
They make it easy to have good behaviors.
They make people want to have good behavior.

Tally is all about nudging people gently into making good financial choices. And it is clearly working. Once someone has signed up for Tally and is using their service, they have an astounding 99% retention rate.

The aforementioned Katie Hyland was introduced to Tally and she quickly became a convert. You could actually hear it in her voice the difference in stress level before she started using Tally and afterwards. Lewis pointed out that even in the middle of a pandemic she was feeling less stressed than before because she finally had her finances under control. That was one of the most powerful parts of the whole podcast to me.

I reached out to Jason Brown to find out what the reaction has been. Here is his response:

The reception to Tally, our story and the story of Katie Hyland has been overwhelmingly positive. Several listeners have shared they had been waiting for a service like ours to come along, so it’s been great to introduce Tally to so many people through the podcast.
Tally has seen an increase in sign-ups, predominantly from people with really high credit quality, which directly challenges the common misconception that credit card debt is mainly an issue for subprime consumers.
During these uncertain times, we believe consumers need a service like Tally now more than ever. We’re committed to helping our users through financial hardship as best we can and have set up a COVID-19 relief program for anyone impacted by the current crisis.

We Can’t Improve Financial Health Without Changing Behavior

I have come to realize that we will never make big improvements in financial health as a culture until people change their behavior. And we will not change our behavior en masse unless we have tools that make it incredibly easy so that we want to change.

It is companies like Tally that give me hope for the future. Much more work is needed, obviously, in all areas of finance but many fintech companies and even traditional banks are hard at work on this big challenge.

But changes like this takes time. And as the pandemic exposes the fragility of countless millions of people’s finances we will be set back as a nation. But maybe there will be a long-term positive outcome here. People could be more motivated to change now as they recognize how fragile their finances have been.

This decade will likely be defined, at least in part, by the pandemic. As fintech companies continue to build more and better tools the 2020s could be the decade we see the finances of Americans turn around for the better. And we might finally see the total credit card debt we hold as a nation start to go down.

The Financial Health Pulse Shows Only 29% of Americans are Financially Healthy

The second annual report looks at several areas of financial health and discovers many people are struggling despite the healthy economy

November 14, 2019 By Peter Renton Leave a Comment

When it comes to financial health most Americans are not doing well. The annual U.S. Financial Health Pulse was released today and it shows that only 29% of people are financially healthy. Meaning these people are spending, saving, borrowing, and planning in a way that will allow them to be resilient and pursue opportunities over time.

The U.S. Financial Health Pulse, in its second year, is led by the Financial Health Network (formerly CFSI) in partnership with Flourish, MetLife Foundation, and AARP. The Pulse report scores survey respondents against eight indicators of financial health — spending, bill payment, short-term and long-term savings, debt load, credit score, insurance coverage, and planning — to assess whether they are “financially healthy,” “financially coping,” or “financially vulnerable”. The survey was conducted between April and June this year.

Here are some key findings from the report:

29% of Americans are financially healthy, up just 1% from 2018.
People are saving less:
- 12.0% of people say they have less than one week of living expenses saved in 2019, up 1.4% from 2018.
- 55% of people aged 26-49 say they do not have enough savings to cover three months of living expenses in 2019, an increase of 4.8%.
People are paying their bills:
- 66.1% of Americans say they can pay all of their bills on time in 2019, up 2.2% from a year earlier.
- People with household incomes less than $30,000 are reporting a better ability to pay their bills on time and manage their debt, up 5.3% and 4.9% respectively.
Women are experiencing significant shifts in stability and stress:
- 51.2% of women say they do not have enough liquid savings to cover three months of living expenses in 2019, an increase of 2.6%
- 20.1% of women say their finances cause them a high amount of stress, compared to 13.2% of men.
Middle income people are showing signs of vulnerability:
- 19.7% of people with household incomes from $30,000 to $59,999 said they spent more than their income in the 12 months prior to the 2019 survey, up 4.1% from 2018
- People with household incomes from $60,000 to $99,999 experienced a similar increase.

The Pulse was also able to compare the same individuals year over year and found that millions of Americans experienced significant swings in their financial health from 2018 to 2019. The median FinHealth score (a score based on the eight indicators mentioned above) change was 7.5 points but one in five people saw their FinHealth Scores increase or decrease by 15 points or more.

Jennifer Tescher, the founder and CEO of the Financial Health Network had this to say about the second Pulse report:

Financial health is fluid. Measuring year-to-year change can give us perspective on what types of factors influence financial health over time, while seeing nuanced data can give us critical insight into how people are faring beyond the aggregate. Identifying areas where Americans are struggling can help stakeholders such as policymakers, employers and insurers hone in on ways to help these groups create more financial resilience.

My Take

As I have said many times the real promise of fintech is to make a positive difference in the lives of everyone. We are still a long way away from delivering on that promise. But the Financial Health Pulse is a unique window into how we, as a nation, are doing. While it is not all bad news, clearly there are segments of the population that continue to struggle.

We need to build better tools that help people manage their debt as well as build emergency savings. These are the two areas that will make the most difference. While many fintech companies are addressing these areas and are helping millions of people clearly there is much more work to be done here.

I hope that within five years we will see some real changes in these numbers, in some part the result of the work being done in fintech today.

Moving Beyond Financial Literacy to Financial Empowerment

May 1, 2019 By Peter Renton 1 Comment

Financial Literacy Month ended yesterday (yes, April is officially Financial Literacy Month) and I have been thinking a lot about financial literacy and its link to financial health. Some of my thinking was prompted by this recent column in American Banker by Jennifer Tescher, the CEO of the Center for Financial Services Innovation (CFSI). Jen is one of the most knowledgeable and influential people when it comes to financial health and someone I always pay attention to (you can listen to my interview with her last year here).

I have also just finished listening to the sessions on the Financial Health and Inclusion track at LendIt Fintech USA 2019 that happened in San Francisco just a few weeks ago. I helped put this track together and I was delighted not just by the quality of the speakers we attracted but also by the interest from the attendees. Pretty much every session on this track was packed which was not the case last year or the year before that. The fintech community is becoming more engaged with the topic of financial health and I couldn’t be more pleased about that.

But back to the American Banker op-ed. Jen made the case that financial literacy programs are not working. The reality is teaching people about finance, the goal of Financial Literacy Month, has not made much of an impact on financial health. It does not lead to lasting knowledge gain and it rarely leads to changes in behavior. Here is what she says is needed instead:

What financially vulnerable people need is access to high-quality products and experiences built to help them succeed by people who truly understand their financial situations and foibles.

I want to reiterate this one point. They need “high quality products and experiences built to help them succeed”. This is it in a nutshell. The good news is that there is a new group of entrepreneurs creating high quality products that could really make a difference here.

This brings me back to the LendIt Financial Health track. One session that I thought was super interesting was around employer based financing. Many of the most financially vulnerable people have jobs but often need to take out short term loans to make it through to the next payday. Far better they get this financing through their employer than via a payday lender. There are several companies in this space doing great work in creating high quality products: Even, PayActiv, TrueConnect and HoneyBee all offer options to employers that help their employees who need access to quick financing. Even has a groundbreaking deal with Walmart that has resulted in 300,000 employees using their pay advance app.

These programs all rely on employers signing up for one of these offering. While I think they will become ubiquitous over time we are still a long from that happening. So, people who are struggling need more options and many more companies are tackling financial health issues in different ways.

Another great session at LendIt was focused around products that have financial health benefits built in to their design. Each of these companies are approaching the problem differently but some of them have significant traction and are really making a difference. MoneyLion has four million users and they are focused on ending financial stress for all Americans by taking a holistic approach and being proactive in providing help. Dave helps the 30 million people who are hit by overdraft fees each year by advancing $75 from their next paycheck. Tally is a fully automated debt manager to help consumers get out of credit card debt. Learnlux is a digital financial wellness platform that helps build digital financial plans for the mass market, they are currently offering this through employers.

While we had other great sessions at LendIt on financial health I don’t want this to become a promotional piece. Of course, this is just the tip of the iceberg. There are many other fintech companies attacking the challenge of financial health. One area that is rarely focused on is the income side of the equation. Steady is a fintech company that helps people maximize their income by providing sophisticated tools for finding a second job. Dave has a similar offering called Side Hustle.

The big challenge for the financially vulnerable is that it is expensive to be poor and getting more so. Many of the aforementioned companies are focused on taking away some of these costs. But more needs to be done. Eventually, we need to get to a point where these products become invisible to consumers so the cost of being poor is vastly reduced without these consumers having to be proactive. That is the way well designed products should work, it gives people a sense of control and financial empowerment.

We live in a country where the majority of people experience financial stress on a regular basis. I think the tide has turned and fintech is starting to take this problem seriously. And this gives me reason to be optimistic about the future of financial health.

The Industry Responds to FDIC Small Dollar Lending Rule Request

The FDIC put out a Request for Information in November on small dollar lending, here is how the industry responded

February 6, 2019 By Peter Renton Leave a Comment

Small dollar loans can be quite profitable. Just look at the number of payday loan stores in the US, there are more than 20,000 of them. The reason they can be so profitable is that four out of five payday loans are rolled over or renewed according to the CFPB. For the most part banks have stayed away from actively promoting a small dollar loan product and the FDIC wanted to know why and what conditions might lead to them to offer them.

So, back in November the FDIC issued a Request for Information on Small Dollar Lending. They received more than 60 responses from banks, industry associations, non-profit groups, fintech companies and individuals. While each group had a slightly different perspective there was an acknowledgement of the challenge of making small dollar loans both affordable for consumers and profitable. While the FDIC did not define exactly what they meant by a small dollar loan the respondents, for the most part, took it to mean loans of less than $5,000.

There are many mainstream online lenders offering personal loans down to $1,000 and there are also many fintech companies offering loans under $1,000. Companies like Oportun, Insikt, LendUp, Elevate, Opploans and many others offer these sub-$1,000 loans using the latest technology tools to make this process more efficient. Often these companies partner with banks to facilitate these loans to underserved consumers. But there are few banks offering online sub-$1,000 loans directly with a notable exception being US Bank. Interestingly, they did not respond to the FDIC request.

Many industry associations did respond and I provide a summary of a few of these responses below.

The Marketplace Lending Association (MLA) provided a detailed 10-page response where they urged the FDIC (and other regulators) to do more to support banks and foster closer working relationships with fintech providers: [Read more…]

MoneyLion Plus Takes An Innovative Approach to Encourage New Investors to Save

Fintech platform MoneyLion is on a mission to change consumers' behavior when it comes to saving

March 12, 2018 By Peter Renton Leave a Comment

It has been said many times that the majority of Americans don’t have enough in savings to cover a $500 unforeseen expense. As a nation we are chronically bad at saving and while the savings rate went up for a time after the financial crisis it is back down near 2005 levels now which was the all time low.

MoneyLion is trying to do something about this. They have a somewhat unique position in fintech in that they have an online lending business but their real focus is improving the financial health of consumers. When you go to their home page they feature their app which anyone can download for free to help manage their finances. You can link bank accounts and credit cards and it can give you a good sense of your overall financial health.

I interviewed CEO Dee Choubey on the Lend Academy Podcast just over a year ago but they have made some great strides since then. I caught up with him again recently to get an update. Today, over 2.2 million people have downloaded the MoneyLion app and 1.3 million people have connected their bank account. This gives the company tremendous insight into their customer base.

In our conversation Dee pointed out that overdraft fees are a major pain point for many consumers. I did a little research and found a 2017 report on bank fees that stated the average American who has at least one overdraft pays an average of $412 annually on these kinds of fees. Dee said the average MoneyLion customer pays even more than that. He is on a mission to change this. He wants to not only eliminate overdraft fees from people’s lives he wants to help them get in the habit of saving.

[Read more…]