Consumer Financial Wellness: The Key to Better Banking Outcomes

Author Nickels
Read time 8 minutes read time

The current state of banking is centered around products and services that are financially beneficial for the institutions offering them, but rarely for the consumers using them. The truth is, for most financial institutions, supporting consumer financial wellness is rarely at the top of their list of priorities. 

But it should be.

Even prior to the pandemic, consumers have been redefining their priorities, placing a greater emphasis on activities that improve their personal and financial well-being. And now that the cost of living, price of housing, and inflation have skyrocketed, financial wellness is at the forefront of most consumers’ minds. 

A recent study found that 64 percent of Americans currently live paycheck to paycheck. As costs rise relevant to stagnant wage growth, more and more consumers are feeling the pinch. Beyond looking for ways to cut costs, they are increasingly seeking guidance on how to better manage their finances, improve their relationship with money, and plan for the future. 

Here lies the opportunity. Between data, digital tools, tailored offerings, and financial literacy resources, banks and credit unions have the power to empower their consumers’ financial lives. Through a renewed focus on consumer financial wellness, these institutions can strengthen relationships, unlock new revenue opportunities, bolster their reputation, and drive positive economic impact in their communities, both locally and on a larger scale.

What is financial wellness?

The terms financial health and financial wellness are often used interchangeably, but there is a key distinction between the two, says Anson Vuong, a managing partner at Gallup. “Financial health is about money; financial wellbeing is about a person’s emotional relationship with that money.” The two concepts go hand-in-hand, but here’s where they differ:

Financial health is the current state of a person’s financial situation, with regard to savings, credit, debt, investments, income, and expenses. It’s essentially a measure of the ability to meet financial obligations, handle financial stressors and work towards long-term financial goals. It can change depending on liquidity, liabilities, and assets, along with fluctuations in the prices of goods and services.

Financial wellness, on the other hand, is about the bigger picture. It’s not just account balances, portfolio growth, or amount of income, but rather the knowledge, behaviors, and attitudes to leverage financial circumstances to achieve financial peace of mind, flexibility, stability, and goals. Good financial well-being is characterized by a positive relationship with money, the confidence to make sound financial decisions, and a sense of control over one’s finances.

The importance of consumer financial wellness

While the terms financial health and financial wellness may not be a part of everyone’s vocabulary, the concepts are at the core of our society. At a foundational level, the ability to meet financial obligations has a direct impact on quality of life. If people can’t pay their bills, cover the cost of transportation to get to work, or pay for food and other necessities, they risk having their utilities shut off, losing their jobs, and going hungry. This, of course, has a significant impact on both physical and mental well-being. 

With inflation soaring and the cost of living rising, it’s no wonder why financial health and wellness are top of mind for the majority of Americans. In fact, according to a survey by the American Psychological Organization, 87% of respondents said that rising prices and money worries were their largest sources of stress. This stress has larger implications.

Financial health is strongly associated with physical health, productivity, and social relationships. If people are constantly worried about their finances, they are unable to thrive in other areas of their lives. The unfortunate reality is, due to a lack of financial education, support, and a number of other factors, many individuals are struggling to spend, save, borrow, or plan in ways that would allow them to build foundations for a more stable financial future, become more financially resilient, and seize opportunities over time. In aggregate, financial wellness has a collective impact on healthcare costs, the stability and growth of the broader financial sector, and the economy.

Why bankers should support consumers’ financial wellbeing

In today’s environment of constant access to information and services, consumers have raised the bar on their expectations of businesses. Banks and credit unions included. In fact, in 2019, 80% of consumers said that they expected their primary financial institutions to help them improve their financial well-being, yet just 14% “agreed strongly” that their institutions delivered. 

Most consumers already trust their banks and credit unions, but by reframing how institutions think about and serve their consumers, they can transform the relationship from being a trusted service provider to a loyal partner in their financial journey. Providing consumers with the tools and support to improve their financial well-being can help institutions build rewarding, long-term relationships that benefit everyone.

Improved financial literacy and access to financial resources can help consumers save more, ensure financial obligations are met, and reduce the likelihood of defaulting on loans. With the support of their institutions and a better relationship with their money, consumers can build a more solid financial foundation. This then opens them up to additional products and services like financial planning, investment products, retirement planning, and beyond. The end result: improved consumer satisfaction, increased retention, and consistent, long-term revenue.

How financial institutions can take action

According to the Financial Health Network, “Research studies suggest that financial health is directly influenced by active saving, manageable borrowing, spending restraint, and financial control and confidence,” and suggests that institutions design their financial services around these elements. There are a number of ways banks and credit unions can reframe their approach to prioritize consumer financial wellness:

Budgeting tools and apps – Many consumers find it tough to keep track of income and expenses. Institutions can offer free tools or apps that empower consumers to review their accounts, assess their spending, plan a budget, and take action.

Leverage data – Banks and credit unions sit on mountains of data but don’t use it to its full potential. Institutions should consider using that data to drive personalization, tailored offerings, contextual credit, actionable insights, and more.

Penalty-free products – Minimum balance requirements, overdraft fees, and other charges can keep consumers down when they’re in a tough spot. Waiving fees, offering relief, or moving away from these models entirely can help consumers find their footing and stop worrying about losing money to fees.

Incentive programs – Through programs that reward certain actions (like consistent savings contributions, enrolling in financial wellness courses, downloading budgeting apps, rebates on healthy purchases, etc.) financial institutions can encourage customers to make responsible decisions that benefit their long-term financial and physical well-being.

Advice and guidance – Many consumers would benefit from a helping hand when budgeting, planning, or choosing financial products. Stepping in to help provide advice and guidance at key moments can help foster stronger relationships and provide support for a more stable financial future.

Financial literacy courses – Finances are rarely discussed in both traditional learning environments and between peers, which leads to a lack of knowledge about how to make good financial decisions. Online courses, blogs, learning platforms, and other resources can help educate consumers, foster better relationships with their money, and give them more confidence in managing their finances.

Educational tools and resources – Beyond courses and articles, banks and credit unions should consider offering resources like calculators, guides, infographics, and other resources to help consumers better understand their financial situation and understand the impact of financial decisions.

Strategic partnerships – Designing, developing, and implementing new financial wellness programs can be a slow process, and not all institutions have the necessary resources to ensure they reach their full potential. By partnering with local businesses, organizations in their communities, and fintech companies, banks and credit unions can diversify their financial wellness offering and get programs up and running faster than they could in-house.

Join the financial institutions leading the movement

Financial health and wellness are complex topics, and the conversation is just getting started. Things like incentive programs, data-driven insights, and financial education platforms are all great ways to prioritize consumer financial wellness, but there are many ways to go about it. Here’s how some institutions are paving the path for other forward-thinking banks and credit unions looking to evolve their approach. 

  • BBVA USA’s new 5-year Strategic Plan places ‘improving financial health’ as the primary pillar for empowering their consumers to make better financial decisions and achieve their financial goals. 
  • ANZ’s growth strategy is to “improve the financial well-being of its consumers” by developing a culture built around delivering better financial outcomes for them. 
  • Discovery Bank has implemented a number of initiatives to support financial wellness by integrating physical well-being. It offers rewards for responsible spending, along with healthy eating and exercising.

Final thoughts

For most financial institutions, it’s no longer a sustainable strategy to simply compete on products and services. The reality is, consumers have more banking options than ever, and nimble fintech companies are frequently upping the ante with more attractive products and services that consumers won’t find at traditional institutions. Banks and credit unions, especially those with a significant number of existing consumers, have the opportunity to build deeper, stronger relationships by investing in better outcomes for their consumers. By putting consumer financial wellness at the forefront of their strategy, institutions can increase retention, improve consumer satisfaction, and grow revenue.