Helping U.S. Consumers Translate Financial Knowledge into Better Financial Behavior

Shaheen Hasan Center for Financial Inclusion

The Center for Financial Services Innovation (CFSI) has been leading the charge in the U.S. to move beyond traditional financial education toward models that help consumers translate financial knowledge into better financial behavior in their everyday lives. CFI interviewed Josh Sledge of CFSI to understand the trends shaping capability-building efforts in the United States.

What are signs that a financial capability framework is gaining traction in the United States?

CFSI works with a vast and diverse network that includes banks, credit unions, non-profits, financial technology companies, government agencies, and academics. Over the past several years, we’ve seen a shift in focus and approach among these various groups of stakeholders that reflects adoption of the financial capability framework. In other words, organizations and companies are increasingly placing an emphasis on helping consumers achieve real and meaningful financial behavior change.

Nonprofits and philanthropic organizations are pushing themselves to create deeper impact and experimenting with new strategies to do so. A wave of recent start-ups is employing technology to give users new products and tools for saving and managing money. Innovative banks are creating budgeting tools, introducing refined messaging, and forming partnerships to help customers better manage their money. We’ve been encouraged to see these developments as they demonstrate that the financial capability framework is taking hold. However, there is still plenty of room to go further.

Where is momentum stalling?

Scaling effective strategies for building financial capability has certainly been a challenge. We’re seeing new high-potential strategies emerge and practitioners and researchers taking a focused approach toward evaluating programs and products for their impact on financial behavior. Taken together, we’re poised to see the emergence of innovative but proven models for improving financial capability. This is a tremendous development, but the next step is implementing these models at scale in order to reach the millions of households that are struggling to manage their finances.

What are some promising innovations that yield potential for building capability among underserved consumers?

Since CFSI began exploring the idea of financial capability with our partners at the Citi Foundation, we have been convinced that technology can play a major role in helping consumers become better stewards of their finances and helping organizations administer and scale programs efficiently.

Our experiences in supporting innovative financial capability programs have only strengthened our belief in the power of technology. Several grantees from our Financial Capability Innovation Funds have built technology tools that have proven to be effective in impacting financial behavior. For instance, Clarifi, a consumer credit counseling organization based in Philadelphia, found that sending well-structured and well-timed text message reminders had a meaningful impact on its clients’ propensity to stay on track with debt repayment plans. Another grantee, Piggymojo, uses goal visualization, social dynamics, and mobile technology to support savings. Piggymojo allows individuals to link up with their significant other or another partner and work together towards a savings goal. Instead of impulse buys, you can use Piggymojo to record “impulse saves” (deciding not to buy that cup of coffee, for example), which are shared with your savings partner, and tracked by the service towards your goal.

The opportunity to continue employing technology to promote financial capability is immense, particularly as more households gain access to reliable internet service and smartphones. However, innovation doesn’t need to be limited to technology. Service organizations and financial services providers should take a hard look at their offerings and the needs and preferences of their clients to find ways to improve their processes and deepen their impact.

What are some interesting partnerships you have seen?

We believe that the key strategy for improving financial capability is linking timely and relevant financial guidance with high-quality financial products and services. This gives consumers a powerful combination: meaningful advice for how to improve their financial health and the tools they need to put that advice to work.

Partnerships between non-profits and financial services providers can be a particularly effective way to bring this combination to life. CFSI’s Financial Capability Institute has worked closely with many non-profits to find financial products that complement their programming; while finding the right product “fit” can be challenging, the resulting pairing creates a holistic approach for improving financial capability. Likewise, partnerships between technology providers and financial institutions can lead to novel approaches to providing financial guidance in the context of a banking relationship. For instance, Ohio-based KeyBank recently partnered with HelloWallet to develop a financial health score designed to help customers understand how they’re doing and obtain advice for how they can shore up their finances.

CFSI has conducted new research to measure the financial health of Americans. Can you tell us more about this work and how it links to your efforts on promoting financial capability?

Financial health is achieved when an individual’s day-to-day financial system functions well and increases the likelihood of financial resilience and opportunity. In the same way that regular exercise and eating a proper diet help to improve a person’s physical health, financial capability is the set of behaviors – budgeting, saving for the future, selecting high-quality financial products – that improves financial health.

In 2014, CFSI launched an initiative to assess the financial health of American households. CFSI designed and commissioned a nationally representative survey of over 7,000 individuals focused on consumers’ financial behaviors, attitudes, and preferences. CFSI’s Consumer Financial Health Study includes this survey and a segmentation analysis that groups individuals based upon patterns of responses to survey questions corresponding with subjective and objective indicators of financial health. The results will provide the field with a baseline for Americans’ financial health and produce actionable insights for how different stakeholder groups can help to improve consumer outcomes. The first major report on findings from the study, “Understanding and Improving Consumer Financial Health in America” is now available. We look forward to engaging the field in a dialogue about the results.