Data’s Role in Personal Financial Wellness

Today, consumers are inundated with data from a variety of resources. While this certainly has its benefits, much of this data is served up without context, often leaving the consumer with more questions than answers. This is especially true in financial services, where those with low financial literacy rates can easily feel overwhelmed and unsure of where to start when it comes to managing their finances and improving their overall financial wellness.

In particular, millennials, who make up the majority of the digital banking population, manage most of their lives through their mobile devices and continually struggle with making sense of their finances. As a generation, they have grown up in the age of convenience, where most of their needs are met through the latest social media, payment, shopping, dining and transportation apps. At the same time, many of these same users are anxious about their financial situation, worried about being able to pay their bills on time and bogged down with tens of thousands of dollars in student loan debt.

With all that in mind, financial institutions have a significant opportunity to offer consumers capabilities that allow them to create a savings plan that works for them, help them understand how saving improves their overall financial health and give them multiple ways to improve their financial wellness.

Based on a study conducted by Aite Research, millennials demonstrated significant interest in services like a virtual financial wellness coach, with 79% of 22- to 49-year-old consumers expressing interest in the use of such tools. In order to reduce debt, achieve saving goals and better track finances, the study found this key group of consumers is also more willing than ever to share their information for tailored insights, guidance and advice (roughly 80% of 22- to 49-year-olds).

But how can financial institutions make information for millennials, and those with lower financial literacies, easier to understand and act on? They can start by taking a page from the successful work of adjacent digital markets, like e-commerce, that have adopted technologies including machine learning and artificial intelligence to provide users with adaptive and personalized experiences and guidance.

In order to ensure this is done correctly, collaboration among analytics, business and design teams is essential. Below is a step-by-step breakdown to help guide credit unions through this process.

1. Create Data-Driven Consumer Profiles

In order to best determine who each individual consumer is, what their needs are and how to best engage them, leveraging and analyzing their data is the first step. This requires breaking down the data silos within organizations to enrich and normalize transaction data, then build resulting analytics models that derive actionable insights. Ideally, bringing in external financial data will make these consumer profiles even stronger as they will help create a more holistic view of the individual’s financial picture. This data will need to be refreshed over time so that as consumer behavior evolves, so does their profile.

A combination of demographic data along with financial behavior-driven attributes that can be derived from financial account and transaction data (like income, spending patterns and loan debt) will ultimately be the most helpful when compiling these profiles, which will in turn allow for hyper-personalized experiences.

2. Provide Contextual and Personalized Education

Once you have a more solid understanding of who the consumer is, their financial activity and the potential challenges they may face, it’s time to provide education that is specifically tailored to each individual. This guidance is a critical step in the process, as sound financial decisions require behavioral and attitudinal changes toward financial management.

Leveraging technology is key in providing personalized financial education that helps users understand their current state, what they need to do next and why. If done correctly, the use of technology not only has the capability to empower consumers to make positive changes in their financial lives, it also can help users access the information they need right when they need it without being overwhelmed. This delivery requires a combination of domain and design expertise, which should be approached in an iterative fashion while gauging consumer reaction.

3. Determine the Best Approach to Providing Personalized Financial Education

Financial institutions can take both a top-down and/or a bottom-up approach to sharing educational resources. The top-down approach provides contextual expert recommendations to consumers based on their financial situation and tactics to best prompt them to take action. A bottom-up approach would cater more to the individuals’ needs and leverage AI and machine learning to provide peer benchmarking and data driven insights to optimize around their day-to-day spending behaviors.

4. Consider Incorporating Additional Analytics

An increasingly popular method we’re seeing in adjacent markets and in the financial services world is peer benchmarking. This requires crowdsourcing best practices by looking at the behavior of each individual’s peer group and tracking their financial behavior that can, more often than not, be converted into tips for others. Essentially, this means crowdsourcing best practices, and has the potential to bring to light more novel approaches to financial management. The key to building these types of comparisons is being able to derive peer profiles that go beyond information like age and location, with financial attributes like income and debt load, providing more robust peer profiles.

While millennials may face a tough road ahead when managing their finances, this approach to education and actionable insight has the power to drastically change consumers’ methods of managing their finances. The more a user can personally relate to and identify with the data that is constantly thrust upon them, the more likely they are to make more informed financial decisions.

Katy Gibson is Vice President, Product Applications for Envestnet. She can be reached at kgibson@yodlee.com.