Understanding Financial Wellbeing

What is financial wellbeing?

As far as buzzwords go, financial wellbeing (also known as financial wellness) is one appearing on everybody’s radar these days. There are many different measures of the concept as there has never been an explicit definition or standard way to encapsulate what the term means. The overarching idea is that individuals with acute financial literacy and a good understanding of their financial health and wellbeing are overall happier and more confident, as that understanding provides them with freedom of choice and a greater sense of security in their daily lives.

According to the Consumer Financial Protection Bureau in the US, financial wellbeing is defined as “a state of being wherein you have control over day-to-day, month-to-month finances; have the capacity to absorb a financial shock; are on track to meet your financial goals; and have the financial freedom to make the choices that allow you to enjoy life.”

Effective management of one’s economic life has proven to not only improve financial health and wellbeing, but also social and emotional wellbeing. Financial planning and goal setting ensures that individuals are making intentional decisions about their money, working towards desired outcomes.

The economic fallout of Covid-19 has also contributed greatly to financial wellness being top of mind for both financial institutions and consumers alike. As this topic garners interests with consumers, banks and FinTech firms are jumping on the bandwagon and beginning to explore ways to help consumers achieve financial wellness, by ensuring that they are providing access to content that will help develop good habits, and that they are providing consumers with responsible and affordable financial services.

Nudge theory and financial wellbeing

Financial health and wellbeing is very quickly becoming a topic of interest as individuals and financial institutions both realise that long term financial stress is a core contributor to having a negative impact on mental and physical wellbeing, as well as productivity levels in general.

How do we get consumers to adopt better financial practices and change their behaviours? Nudge theory is a concept in behavioural economics that proposes nudges as positive reinforcement to help individuals progressively develop improved thought processes, decisions and behaviours. Nudging helps individuals develop better habits and influences the decision-making process of individuals positively.

Financial wellness is often thought to be a daunting and unachievable feat for consumers as they might assume it is difficult to understand or they do not have enough knowledge or time to achieve it. Penalties are often used as a deterrent to make better financial decisions, but it incurs cost and can have a tendency to result in unintended negative repercussions.

Nudges on the other hand do not remove choice or agency for individuals, but rather present an alternative that will help consumers get to the same point and achieve the same intended results. It can be set off as a default, which then also makes it timely and convenient. This makes nudges highly successful as a tool to help financial institutions usher more consumers into achieving financial wellbeing.

Open Banking and financial wellbeing

The unrealised benefits of Open Banking for the end users are significant. Open Banking through its various global incarnations, enables consumers to have a holistic overview of their finances across the multiple financial institutions they might be banking with. As such, it is an important tool contributing to the successful deployment of programmes promoting financial wellbeing.

Open Banking allows for not just financial institutions, but also consumers to have access to all of their banking information centrally. This consolidation will empower customers, as banks strive more than ever before to serve users with better options. The transparency will also enable consumers to decide which products meets their needs best. Additionally, having a detailed overview of all their finances will be a great step to becoming more financially savvy.

The demand for financial management tools and services has never been more prominent. Digital-only banks and digitisation of financial services provide customers with improved experiences by building on trust and the overall relationship between financial services and customers. Digitisation, together with Open Banking can be seen as an impetus for the enhanced levels of customer service that consumers enjoy today.

What are banks doing to promote financial wellbeing?

Financial institutions are currently looking beyond simply providing consumers with money management alerts. A main reason for banks to rethink their approach to promoting financial wellbeing is the stickiness of good financial habits. Consumers are more likely to change and adopt new financial management techniques if they are presented with a steady stream of valuable content and insights that will manifest into new behaviours.

Everyone has unique goals, needs and requirements that change with time and circumstance. Financial institutions are trying to take a more personal and comprehensive approach to address financial wellbeing for consumers, as it is proven that investing in such programs not only helps to position themselves as genuine financial guides for individuals, but also drives customer loyalty and engagement for their financial institutions.

Online interactive courses

Banks can run end-to-end online and personalised courses over a set period of time to help coach customers interested in such programmes with practical activities, financial tips and timely challenges to help them understand steps needed to achieve financial wellbeing. This enables customers to embark on a journey of discovering financial wellbeing, and such a guided approach will hopefully result in the development of improved financial habits.

A good example of this can be found with ANZ in Australia and its online ANZ Financial Wellbeing Challenge that consumers can sign up for to receive coaching, tips and information around how to get financially fit. This free email challenge helps participants plan expenditure, manage debt, set savings goals and start investments. The 6-week timeline that the bank has set for this programme aims to not only set financial wellbeing in motion, but hopefully to instil better financial habits for individuals in the long run.

Collaborative ecosystem for greater transparency

One reason consumers cite as a hindrance to achieving financial literacy is the lack of transparency and siloed pockets of information across the financial institutions they bank with. This doesn’t allow consumers to have a solid overview of their financial status.

In Singapore, local banks such as DBS with its DBS NAV Planner service address this issue by becoming digital advisors providing personalised financial planning features to their users. These capabilities were recently enhanced with the local variant of Open Banking named SGFinDex which makes it possible for individuals to view all their finances and access information like the balances of their deposits, credit cards, loans, investments and even property assets in a single view.

This comprehensive overview empowers consumers and helps them understand how each and every individual financial decision will make an impact on their overall situation, thus helping them navigate their journey to achieving financial wellness.

An additional benefit for consumers is that, with their consent, all their banks have technically access to the same aggregated information, hence increasing the competition and incentive for these financial services providers to use that data in order to truly improve the value offered to their customers, and not just to enhance their marketing effectiveness.

Personalised financial services

While the rapid digitisation of financial services is a welcome aspect for many, some consumers still prefer human interaction and a personal touch when it comes to managing their finances. A human element is still very much desired when it comes to personal banking.

In Europe, Bank of Ireland employs a two-pronged approach to help its consumers achieve financial wellness. Not only does it offer an online financial wellbeing health check on its website, but consumers also have the option of taking the next step and talking to a financial advisor on what they can do to improve their financial situation. It also provides a rich library of articles on topics such as how to start saving, how to manage finances during a pandemic and information about tax benefits or relief that individuals might not have chanced upon by themselves.

Helping consumers discover rebates and benefits

The year 2020 saw many people losing their jobs and businesses closing. Governments and financial institutions across the globe stepped up and offered heightened income support or relief during those times to help ease the financial burden for consumers or businesses. The discovery process for understanding what benefits one might be eligible for however, could be a daunting one.

Commonwealth Bank of Australia offers a benefits finder that helps consumers discover if they are eligible for concessions, rebates or even tax relief. What originally began as a system for consumers to process Covid-19 affected flight refunds, has now developed into an extremely useful financial wellbeing tool. It is applicable for both personal and business banking, thus supporting users across the board in understanding what benefits they are able to access through and beyond the pandemic.

Becoming a behavioural bank

Behavioural science techniques are taking centre stage as financial institutions discover that they can be harnessed to help create better habits financially. And using these techniques in the context of financial wellbeing programmes can be found truly across the globe on the agenda for financial institutions now.

South Africa’s Discovery Bank brands itself as the first behavioural bank that was started with financial wellness as a core and guiding principle. Harboured within its Vitality platform, it promotes exemplary banking habits and incentivises financial decisions that will generate savings and investments.

Along with incentives for responsible financial decisioning, it also offers consumers rewards for eating healthily and exercising. Most significantly, it outlines the need for a national effort towards reducing debt and fostering healthier saving habits to collaboratively propel the country forward socio-economically. Discovery Bank, as some its peers globally, is starting to reimagine what the digital relationship between a financial institutions and individuals can look like, not just to achieve financial wellbeing, but also overall wellbeing of the individuals.

Conclusion

Financial wellbeing is for life, not just for retirement. Now that financial institutions understand that it is more than a personal responsibility to ensure financial wellbeing, they are focusing their attention and the capabilities of their digital banking channels to ensuring that consumers have the right tools to achieve their short and long term financial goals.

How can Moneythor help?

Moneythor offers an orchestration engine sitting between the financial institutions’ systems of records and their digital channels to power engaging and tailored experiences for end users. It offers pre-built use cases with out-of-the-box support for the deployment of interactive financial wellbeing programmes.

With the Moneythor solution, banks and FinTech firms can upgrade the digital experiences they offer with personalised insights, actionable recommendations and contextual nudges designed to improve their customers’ financial wellness.

When rolling out financial wellbeing programmes, the Moneythor solution can help:

• Give customers a holistic view of their finances across all their assets and liabilities, including across banks with Open Banking.
• Enrich customers’ data to enhance their understanding of where their money goes.
• Power long-running programmes and challenges with objectives and milestones for customers to achieve.
• Reward customers who are progressing towards improving their financial situation.
• Educate with personalised financial literacy tips adapted to various audiences.
• And more!

Updated: 26 April 2022.