The Evolution of Personal Financial Management: Embracing Engagement

The financial services industry – particularly credit unions and community banks – are on the cusp of a major shift. As a veteran who has witnessed numerous trends come and go, I believe the transition from Personal Financial Management (PFM) to Personal Financial Engagement (PFE) isn’t just another fad – it’s a fundamental reimagining of how credit unions and banks interact with their members and customers.

The Limitations of Traditional PFM

When PFM tools first emerged, they seemed innovative, offering credit union members a way to track spending and set budgets. But in my experience, most of these tools ended up being more aspirational than practical, failing to create substantial value for members or the credit unions themselves.

The problem? Traditional PFM tools often required too much manual input and communicated historical, backward-looking data. As a result, engagement rates were low, and many members abandoned these well-intentioned but ultimately limited tools.

Enter Personal Financial Engagement

Personal Financial Engagement represents a significant leap forward. Instead of static pie charts and basic budgeting tools, PFE offers dynamic, personalized financial guidance powered by AI and real-time data analysis.

This isn’t just a rebranding of PFM. PFE is about creating a continuous loop of value delivery through proactive, digital engagement. It starts with onboarding and extends throughout the member lifecycle, adapting to changing needs and circumstances along the way.

Why PFE Matters Now

A recent report from Celent, a respected research firm in the financial services technology space, sheds light on why PFE is becoming crucial for credit unions and banks. The report highlights a few key points: First, member engagement is now the primary way financial institutions deliver ongoing value. Second, among various initiatives, promoting members’ financial wellness has become the most widely adopted strategy for delivering value. Third, credit unions need to sharpen their thinking about member engagement through financial wellness.

These findings underscore a critical shift in credit union strategy. The traditional approach of leading with products and providing basic financial tools is no longer sufficient to address members’ growing expectations that their credit union knows them and advises them.

The Key Components of PFE

So what sets PFE apart from traditional PFM? Based on my experience and insights from the industry, here are the critical elements: Tailored financial advice at scale. Proactive guidance. Relevant product recommendations. Connected channel delivery. Continuous and automated support.

The Business Case for PFE

While the customer benefits of PFE are clear, it’s also valuable for credit unions to drive business outcomes. By embracing Personal Financial Engagement, credit unions can boost digital channel engagement, improve needs-based sales and member lifetime value, reduce member churn rates, and encourage adoption of relevant digital tools and services.

Additionally, PFE allows credit unions to position themselves as indispensable partners in their members’ financial lives. This deeper relationship can lead to increased loyalty and lifetime value.

Challenges and Opportunities

The shift to PFE isn’t without its challenges. Credit unions and community banks need to navigate data privacy concerns, ensure the accuracy of AI-driven insights, and strike the right balance between helpful and intrusive communication.

However, the opportunities far outweigh the challenges. PFE opens new avenues for credit unions to identify and address potential financial issues before they occur, offer timely, relevant product recommendations, create tailored financial guidance that adapts to changing member needs and provide contextual advice during significant life events.

The Path Forward: A New Era of Banking

The evolution from PFM to PFE represents a fundamental shift in credit union-member interactions. By using data and AI to offer tailored, proactive guidance, credit unions can deliver value in ways that were previously impossible.

Moving forward, successful credit unions will use PFE to create deeper, more meaningful relationships with their members. It’s no longer just about managing money – it’s about partnering with members to achieve their financial goals and improve their overall financial well-being.

The future of credit unions and banking is personal, proactive and data-driven. The question isn’t whether credit unions will adopt PFE, but how quickly and effectively they can do so. Those who move swiftly and thoughtfully in this direction will be well-positioned to thrive in the new era of digital banking.

Jody Bhagat is President of Americas for Personetics, a New York, N.Y.-based provider of customer engagement and personal financial management solutions for financial institutions.