When people are giving up on things like fresh food, sex, gigs or hot showers to save money, you know the struggle is real. And by struggle, I mean the cost of living crisis that’s been creeping up on all of us over the past few months, one bill at a time.
Just last Thursday, Reuters reported that as a result of soaring energy and food prices, an additional 71 million people in the world’s poorest countries are crashing into extreme poverty, according to the UN Development Programme. Inflation is soaring to multi-decade highs in every corner of the globe, wreaking havoc on household finances for many. In Germany, for example, inflation rose to 7.9% in May, marking the third record rate in a row since reunification in 1990. The same month, US inflation hit a fresh 40-year high.
What has also surged on the heels of the rising cost of living, is a need for digital tools and technologies to improve cash-strapped consumers’ financial health and resilience. That’s according to the newly published The Forrester Tech Tide™: Financial Well-Being, Q2 2022, an essential guide to the technologies that underpin highly effective financial wellbeing programmes (with Finshape featured in four categories, no less!). Here are my main takeaways from the report and what they mean for banks looking to ease customers’ financial stress.
1.Budgeting tools: make them no-hassle or forget about it
Budgeting and savings tools have been around for years, but their track record isn’t exactly stellar. More often than not, the reason for these apps’ patchy success is the hassle of using them. It’s 2022. No one wants to manually enter or track anything. And when it comes to managing finances, many people don’t even want to think about it. As per the UK’s Money and Pensions Service, one in three adults in the UK admittedly gets stressed out at the thought of their financial situation, and 24 million don’t feel confident managing their money.
The solution? Seamlessly blending budgeting and savings tools into digital banking capabilities, reliable, high-quality transaction data enrichment and fully automated spending categorisation. In other words, taking the cognitive burden of financial decision-making away from bank customers through advanced data analytics and automation. But in doing so, financial institutions should also keep in mind that budgets are like diets – there are no one-size-fits-all solutions here.
Consumers’ financial realities, ambitions and mindset should be viewed as part of the equation. Looking at current balances, spending patterns and upcoming payments, banks can predict when people become at serious risk of defaulting on payments and show them where to shave off costs on want-type expenses like take-out meals or subscriptions. Especially during periods when we tend to spend more, for example, during the summer holidays, before birthdays or around Christmas.
2. Bank customers need more than just snapshots of their financial lives
If they want to turn their short- and long-term financial goals into reality and get their finances into shape, that is.
This is not to say that snapshots of money matters aren’t crucial. Giving people the lowdown on where their finances stand, especially in a way that’s easy to understand and, if needed, act upon should absolutely be part of any bank’s financial health framework. Think: spending and income highlights and history, upcoming bills and recurring payments, outlier transactions and top spending categories. But these insights should develop into a larger picture.
Cash flow analysis and forecasting tools not only tell customers about the daily goings on of their currency accounts but also what’s to come and what it means for their money. And just as importantly, what they can do about it. These types of insights might include cash flow predictions and safe-to-spend balances, tips on how to better prepare for future financial events and even product offers to help customers weather an emergency.
3. Don’t expect customers to self-educate
“Spending insights help customers understand what they have and how they’re doing, but they don’t necessarily help them understand what they should do next or how they can improve the state of their finances,” Forrester explains. Tech vendors who are leading the pack, however, are increasingly relying on machine learning and predictive analytics to put these insights into a broader context, empowering customers to take action and change their attitudes and behaviours towards money matters.
Their timing couldn’t be any better.
Cost of living crisis aside, the lingering economic effects of the pandemic have taken quite a bite out of bank customers’ savings. A recent study by Northwestern Mutual found that the average American’s personal savings fell 15% from $73,100 in 2021 to $62,086 in 2022. Northwestern Mutual chief customer officer Christian Mitchell pointed out: “There could be several factors contributing to the drop in savings from last year, ranging from spiking inflation to people spending more as they resume some sense of normalcy in their lives.”
When building (or rebuilding) their savings, many find it difficult to set realistic goals and keep working towards them, whether it’s a retirement plan or an upcoming holiday. Based on their spending habits and recurring payment transactions, smart money management tools can help bank customers find safe-to-save money they might not have even known they had and adopt good saving behaviours. A word to the wise: users expect specific guidance, but they also want a high level of flexibility in terms of options.
Offers, again, can very much be included in notifications about existing savings or investments, such as term deposits that are due to mature soon. Especially now that a rising interest rate environment is in full swing. After years of getting interest rates on savings accounts that ranged from laughable to downright offensive, those who stash their cash can finally catch a break. Going back to the US, experts say the interest rates on some savings accounts could be as high as 2% by the end of year, a meteoric rise compared to the 2021 average of 0.06.