The banking landscape today across the entire globe bears very little resemblance to what it looked like even a few years ago. Indeed, it is fair to say it never stands still – and continues to change, constantly. The common denominator behind this change is, of course, technology. The rise of online banking, digital-only banks,
Author: Kevin Phillips, Director of Solution Engineering
Financial wellness has, in recent years, become a well-known and widely used term, as organizations, financial institutions, wellness programs and consumers themselves have increasingly recognized the importance of financial health in overall well-being.
The concept has gained traction in discussions around personal finance, employee benefits, and holistic wellness, often seen as a critical component of physical, mental, and emotional health.
Indeed, it can be argued that financial wellness is rising in the ranks to vie for attention alongside the need for good physical health, and acute mental health.
However, how can it be achieved? While certainly in the UK, some attempts have been made to officially promote the concept of financial wellness, there is no over-arching framework in place, leaving the door wide open for financial providers to seize the opportunity to help consumers as much as they possibly can.
What is financial wellness?
Financial wellness refers to when an individual has control over their financial life, defined as being able to meet current and future financial obligations, to feel secure about their financial future, and to enjoy a sense of freedom to make choices that allow for a fulfilling life.
It involves having a good balance between income, expenses, savings, and investments, and being prepared for unexpected financial challenges.
It is important to note that some attempts at financial wellness legislation have been made. One such example is the formation of the UK Strategy for Financial Wellbeing, a ten-year framework developed by MaPS with the aim of helping people make the most of their money and pension plans.
The strategy outlines a few key goals, including providing 2 million more children and young people with a proper financial education. Research by MaPS identified 11.1 million working age adults on low-to-modest incomes who do not save regularly. This prompted the creation of the Nation of Savers initiative, which sets out to encourage 2 million working-age people on low-to-modest incomes into the habit of saving regularly by 2030.
Key components of financial wellness may include some or all the following:
- Budgeting and spending control: Managing daily finances by keeping track of income and expenses to avoid overspending and ensure funds are allocated efficiently.
- Emergency savings: Having a financial buffer, typically 3-6 months of living expenses, to cover unexpected costs, such as medical emergencies or job loss.
- Debt management: Handling debts responsibly, including paying off loans and credit card balances in a timely manner to avoid accumulating high-interest debt.
- Short- and long-term goals: Planning for both immediate and future financial objectives, such as buying a house, saving for children’s education, or preparing for retirement.
- Retirement planning: Ensuring sufficient savings and investment strategies are in place to maintain financial independence after retiring from active employment.
- Insurance: Having adequate protection, such as health, life, and disability insurance, to safeguard against financial loss.
- Financial literacy: Understanding key financial concepts, such as how credit works, investment strategies, and taxes, to make informed decisions.
How hyper-personalization can hit the financial wellness spot
Everyone is an individual, with specific needs, lifestyle choices and life ambitions.
To truly understand these specific requirements, the modern financial services provider needs to empathise with their customers. Indeed, if a provider relies on a one-size-fits-all approach, they will be setting themselves up for a fall in today’s digital age.
After all, do those who are single with no children really want to receive scattergun communications extolling the virtue of taking out life insurance to protect their non-existent children? Probably not, but there are still providers who will send out a life-insurance promotion email to all customers within a specific age range.
Let us look again at the seven points above. Will everyone’s budgeting and spending be at the same level? Of course not. Some will have more ability to spend money than others. Likewise, will everyone’s retirement plans be the same, as discussed in point number five? Absolutely not. People want different things in retirement – some will be happy to carry on working, some will want a life of luxury, and some will be happy somewhere in the middle.
If financial providers can achieve this true, empathetic understanding of their consumers, they will go a long way to helping them achieve true financial wellness. If a customer is furnished with the most appropriate retirement advice, has the right level of savings and investment goals, is given a mortgage that best suits their needs – indeed, has the full suite of individually-tailored, hyper-personalized financial products, they will arguably be in the best shape possible when it comes to financial wellness.
Let us not forget, today’s consumers expect to be known, understood, and to get exactly what they need from their institution, just when they need it, on their terms, and wherever they happen to be.
How can true digital empathy be achieved?
In days gone by, a bank manager and staff would have personally known their customers’ specific financial requirements.
However, those days are rapidly vanishing – replaced instead by a drive to “anonymous” online banking and digital technology. Against this change, how can financial institutions know the needs of their customers, most of whom they will never even meet in person?
By plugging in a sophisticated, data protection-compliant AI tool, a bank, credit union or building society can turn the few and basic touchpoints it has on its clients’ lives, such as age, gender, geographical location, and nationality, into a rich source of intelligence. AI can analyse detailed behaviours such as the purchases their clients are making, what time they are accessing emails and even the tools they are using, such as a laptop or a smartphone.
The level of granularity is such that AI tools today can pinpoint who is likely to be an animal lover by the frequency they are buying petfood or visiting a pet superstore. Those who have gym memberships or pay football club subscriptions are likely to be fitness or sports fanatics, and people who regularly spend money on gaming and computer accessories are likely to enjoy living in augmented reality.
The availability of such rich insights opens the possibility for financial providers to make a very specific sales pitch based around the characteristics of an existing, or potential client. A specific retirement savings plan might be the same – it might be a straightforward investment or savings product. However, a targeted approach will specifically make it appeal to multiple types of people.
This hyper-personalized approach is not limited to the products themselves – it even applies to how the communications are delivered. AI can tell institutions when to send out messages, dependent on the habits of different groups. Some might prefer an email early in the morning, others might be more receptive late at night.
The possibilities are endless. AI takes out the labour-intensive process of trawling through customers’ data and can analyse reams of data, covering thousands of customers, incredibly swiftly.
Conclusion
To achieve true financial wellness, consumers need to be supplied with the most appropriate financial products. To provide these products, financial institutions need a true understanding of their consumers’ explicit needs.
It is a simple, two-step process.
However, although it may well appear straightforward, the intel and the tools needed to achieve it are very specific, all revolving around empathy and hyper-personalization. If a provider can demonstrate it truly understands its customers, it will stand out from the crowd in an ever-competitive landscape.
Let us not forget, today’s financial landscape is arguably controlled by consumers themselves, who are more likely than ever to ditch and switch if they feel their specific financial needs are not being met.
