financial health Archives

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…]