Financial wellness
For more and more consumers, the hopes of achieving financial security have become increasingly distant as the pressures of health care expenses, education costs, retirement planning and other burdens take their toll. The stress of these challenges affects both their physical and mental well-being, as well as their personal relationships, work productivity and most every other aspect of life. Nearly 78% of Americans are living paycheck to paycheck, according to a CareerBuilder report, too often relying on high-cost, predatory payday loans to get them through.
Would you accept a loan for a car if the APR was 400%? What would you think about 700%? These rates are staggering. Often times, people who use these services have nowhere else to turn because they need cash immediately and/or their credit scores are not high enough to qualify them for a loan. Many payday loan borrowers "roll over" the loan multiple times. When they do that for just three months, the amount due can be overwhelming. It's what we call a "debt trap" or "debt spiral."
We believe everyone has the capacity and resilience to become financially healthy and stable when given the tools to help change their behaviors. Often the first step is to offer them a reasonable, short-term credit option when their financial crisis hits. Our small dollar loan platform, for example, provides consumers in credit unions' communities a lifeline to their next paycheck with a fraction of predatory lenders' APR. It also offers the financial wellness tools necessary to improve their lives and the lives of their families, and the financial education they need to get themselves back on their feet.
After this first step, it's imperative to continue to support them on their journey. Financial health is neither a one-time achievement nor the automatic byproduct of one or two appropriate financial tools. It's an ongoing lifecycle. And, just as weight control is only part of maintaining physical wellness, financial wellness needs to go beyond just saving money. In both cases, adopting a healthy lifestyle requires making behavioral changes on a broader spectrum. That, in turn, is a matter of learning and understanding, replacing bad habits with good ones and developing the discipline to stay the course.
Our research has determined consumers need a simple-to-use financial wellness tool that does more than just transfer money from checking to savings. They also need more than educational articles posted on their financial institution's website or an app that isn't personalized with their own unique financial data. They need a way to improve their financial well-being while on the go, in a way that changes behavior, educates, rewards achievement and provides a live coach to help them when they slip.
A successful financial wellness app uses banking relationship data, analytics and human interaction to diagnose and self-prescribe "financial" therapies to build financial health. It should be based on the premise of applying "digital financial therapy" to scale a credit union's ability to build upon members' financial capacity, stability and resilience.
Digital financial therapy represents a powerful yet provocative new idea. It was originally conceived during our research of the psychological perspective of individuals and their relationship with money. Using best practices from digital health therapeutics and behavioral economics, we can diagnose symptoms and personalize treatment via a mobile app. Our app, for example, connects to the core banking system and then leverages unique customer data to provide personalized, financial education in real time. It also uses cognitive behavior therapy, combined with data science and gamification, to help drive change in spending and savings habits. In addition, the app connects consumers to financial advisors who are there to help coach them.
The principles that have been successfully used in treating serious health conditions digitally can also apply to the treatment of an individual's financial well-being. By utilizing these same methodologies, we are able to digitally focus on the development of an individual's personal financial coping strategies.
Our app's analytics identify patterns, target problem areas, and engage the user and their financial coaches to begin the process of changing the user's behaviors. Each transaction and change in the member's attributes are sent to the app, which then uses algorithms to create a personalized experience for the user.
This data is also provided to the human financial coach through a comprehensive dashboard specific to each member. Examples of various notifications pushed out by the app include user alerts on cash flow changes, pending overdraft charges or an opportunity to save. In conjunction, the app utilizes a comprehensive learning management system to deliver a unique feed of content including surveys, quizzes, articles, videos and infographics that adapt to different learning styles and levels.
After continued use of a robust financial wellness app, a member will notice a change in their thoughts, beliefs, attitudes and emotions related to money, and make great progress on their journey toward financial health.
Ben Morales
Ben Morales is CEO of QCash Financial, LLC. He can be reached at 800-893-7893 or [email protected].
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