For far too many of us, asking about our finances elicits an immediate stress response. Whether the inability to shake off university debt, the difficulty in building future savings, or the juggling of multiple conflicting demands, the state of our finances has an undeniable and intrinsic link to our quality of life and overall physical and mental wellbeing. And, according to the 2016 edition of PwC’s Employee Financial Wellness Survey, financial stress is on the rise, with Millennial’s typically in worse shape with regards to their personal finances than previous generations.
These issues were explored as part of London Fintech Week at an Innovate Finance Global Summit Fringe event hosted by FemTech Leaders London and LBG Innovation Labs in which Ghela Boskovich, Director of the FemTech Leaders Global Network, led a discussion with Vica Manos (Director, Anthemis), Anna Laycock (Executive Director, The Finance Innovation Lab), Fahd Rachidy (Founder & CEO, Abaka) and myself.
While people may think of finance as quite a quantitative field, our relationship to our finances as individuals is very emotional. This brings two important points to light:
- Our financial wellness is strongly correlated to our physical and mental health
- Our behavior and decision-making when it comes to our finances is not necessarily rational
Financial Wellness, though increasingly an area of interest, perhaps driven both by a societal focus on wellness as well as a Fintech response to a market need, has no official definition — in fact, it is a somewhat esoteric concept and still broadly unfamiliar to the general public. As Vica Manos explained, when setting up the financial wellness investment partnership between Anthemis & MMI Holdings, their survey of existing literature led them to define it as a customer-centric value proposition touching various aspects of one’s life: a continuous process of financial planning, management and behaviour adjustment with the aim of affording your planned and unexpected expenses in order to reach your goals over your lifetime.
Financial Wellness is a concept that touches all of us, both those who have access to traditional financial services, and those who do not and are addressed by initiatives looking at financial inclusion. To operate in society, we are all beholden to an economic system for which we require access to monetary and credit services to participate, be they formal or informal. Sadly, these typically come at the greatest cost to those who can least afford them (sometimes referred to as the poverty premium). Whether due to geographical distances, the inability to cover a minimum balance, or lack of formal identification requirements, relying on informal financial services means limited options, which are typically much more costly and not covered by consumer protection laws. It’s also why financial inclusion is often at the crux of economic empowerment — it is providing you with better tools to operate within an economy.
Defining financial inclusion as access to fair, affordable, sustainable and competitive financial services, and thinking of this in the context of financial wellness, it’s easy to see how financial inclusion can lead to improvement in overall quality of life. This is one exciting area for Fintech to address and one where we often see emerging markets lead the way: both from a demand side (if a large percentage of your population lacks access to traditional banking, innovative new solutions have an immediate urgency and appeal) and a supply side (more often building from scratch rather than having to deal with the complexities of integrating with legacy systems).
When discussing financial instability and distress, often the issue of financial education gets raised. But while financial education and financial literacy are important topics for financial wellness and financial inclusion, are these the root cause of poor financial health? We’d typically say no. Anna Laycock stressed that financial literacy isn’t enough if people simply don’t have any good options: imagine your washing machine breaks and you have to make the decision of either taking out a payday loan to cover the repairs or sending your child to school in dirty clothes. We may know it’s not the best option but depending on our circumstances, we may have no other choice. But here, I’d say there is a great opportunity not only for financial service providers to create new products with the customer in mind but also to help make people more aware of what their options are.
Another strong opportunity for Fintech identified is to help that large percentage of the population who are not necessarily financially unwell but perhaps not as strong as they should be. Not dissimilar to those of us who continually put off going to the gym, mainly highly educated individuals, whether out of some visceral fear or perhaps simply blissful ignorance, demonstrate low levels of engagement with financial services.
How is this being addressed? We touched on three areas:
- Artificial intelligence: One example from our panel, ABAKA, uses Artificial Intelligence to help provide tailored guidance and support to employees in making decisions about their savings, reducing financial stress while simultaneously increasing workforce engagement.
- Open bankings: Being able to access a holistic view of an individual’s finances will help enormously in order to understand one’s full financial health
- Behavioural science: another area being explored by groups like ideas42 in order to provide nudges which cater to the irrational side of our financial management
Fintech has an advantage here in taking the silicon valley mindset of consumer centricity, whereas the traditional financial services industry has been very much supply led, pushing products rather than responding to consumer needs.
This shift to a consumer, in fact, a human focus, breaks down the myth of the typical target of financial services providers: a single, rational male. Not only are these not typically rational decisions, finances are often dealt with in the context of a family or social unit, rather than an individual and with women often responsible for the financial decision making.
In the end, Ghela stressed, it’s about humans, power and control.
In designing financial products, we need to remember our customers are humans: human-centred design and a customer focus are critical. Wellness needs to be holistic and we need to understand the lives of the individuals which are forcing them to make the choices they do.
We should also recognize the power of these products: access to financial services means access to the economy. Being financially in control means being in control of our lives and is thus intrinsically linked to our health and well-being. And here we have a great opportunity to not only empower those currently excluded, but to help those with access to engage and truly take control of their financial health.
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