The New Financial Health

Ideas of financial health have long been rooted in the concept of “financial literacy,” and dominated by educational approaches designed to teach people how to better manage their financial lives. While financial literacy is important, and it should be taught in high school, a singular focus on financial literacy ignores two facts.

First, many people who struggle financially are making rational financial choices for themselves. They’re making financially literate decisions given the limited range of (often unattractive) options available to people outside the financial mainstream. Further financial education doesn’t solve their problems. So, a focus on financial literacy may be distracting us from a more valuable discussion of systemic financial challenges many people face. Better products and better regulation might help.

Second, as fascinating as financial services and FinTech are to readers of this blog, a lot of people have busy lives and aren’t that interested, no matter how much fun ideas for gamification might seem. They need solutions that run autonomously, behind the scenes. To use a car analogy, they want a vehicle that takes them where they’re going. They don’t know, nor do they want to know, how internal combustion engines work. Today’s PFM tools don’t meet their needs.

Financial health is a mainstream issue. A more holistic conception of financial health requires changing the way we measure and manage financial health for all consumers. It uses technology to help people change their financial behaviors and influence the financial decisions they make, but it also has to offer new solutions for people who, for instance, might live in banking deserts or have good but volatile income. The PFM apps of today need to disappear into the banking platforms of tomorrow and learn to act on their own.

This jemeriad was prompted by a panel called “New Financial Health” during Boston FinTech Week moderated by Ron Shevlin, Director of Research at Cornerstone Advisors and author of Smarter Bank. Panelists were Guy Assad, CEO of Clerkie; Laura Barger, CMO of Financial Health Network (known until recently as CFSI);Ramy Serageldin, CEO of HoneyFi, and Sarah Morgenstern, Principal, Investments at Flourish VC. 

Key take-aways:

  • Financial health is important for everyone, not just LMI consumers. Your financial health impacts your physical and psychological health (and vice versa). 
  • The new approach to financial health is behavioral, not educational. It’s about using tech to engender behavioral change.
  • Artificial intelligence will change the way we measure and manage financial health. Accurate and ongoing measurement will be key.
  • Flourish VC believes we will use AI to significantly lower cost of delivering personalized advice to consumers, and to reduce the amount of time people have to spend on managing financial services. 
  • But artificial intelligence will require large amounts of data. The Financial Health Network is using a framework of eight measures, and they’ve enlisted 40 organizations to take those measurements and report the data back. 
  • Financial health measurements are being used today to develop new products. Could they be adopted as KPIs by financial institutions or by employers along with measures of employee satisfaction? 

Panelist were in agreement that point solutions won’t work. Systemic solutions are needed. Who’s going to step up and create a bundled financial health platform with the range of products required to meet a broad range of needs?

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