“The problem is that getting consumers to use these apps — and stick with their advice is challenging. First of all — though the vast majority of Americans are financially illiterate according to the tests, the vast majority of Americans also don’t know that about themselves. Consumers tend to overestimate their financial literacy.
According to a survey by research provider Raddon, 44 percent said they were “very” or “extremely” literate, but when given a financial quiz, only 6 percent scored an “A.” It is hard to get consumers engaged with an app offering a service many don’t perceive themselves as needing. The good news, according to PYMNTS Financial Invisibles study, is that U.S consumers as of last year were warming up to the idea of seeking some extra help. As of late 2018, 28 percent were “very” or “extremely” interested in financial education, a figure that continually rose throughout that year.
However, the same study revealed that education is a tool with limited reach; to manage money well it seems one needs a minimum amount of money to work with.
According to our data, people living paycheck to paycheck aren’t blowing money frivolously. The majority (51.8 percent) are stretched covering basic bills, and nearly one-quarter (24.3 percent) simply don’t make enough to cover their costs.
Moreover, as Affirm CEO Max Levchin noted in an interview with Karen Webster last year, merely giving customers knowledge about how to best manage money is only a starting point. To change the financial literacy picture isn’t just a matter of affecting what customers know. It is also about getting them to apply the knowledge to change their habits around money.
The trouble with most financial-education apps, he noted, is that they are built to make life simpler for the already financially responsible and knowledgeable — people who in a pre-app world would have been managing all their household finances via a spreadsheet. That person will hugely benefit by how much time financial-education apps save them, but they were never really the customer the product was built for.
So how to make them land? That, Levchin noted, is about finding a way to offer more than information about financial responsibility, but to find ways to make it rewarding for customers. The bad habit exists for a reason. It was or is rewarding to the customer who has it.
To create a good habit to replace it, it’s not enough to tell a customer they are doing something wrong, he said. You have to tell them how to do it right and then give them a reason to want to do it right.
Analysis
Highlighted in this article is the importance of giving people more than just knowledge with financial literacy. Habits are hard to break because habits are inherent to how an individual functions; that is how they learned, how they’ve done it, and how they plan on doing it. This makes me curious as to if people could use more of a nudge to rework these habits. Stubbornness is a trait that many Americans have, and if they feel uneducated in finances, they view it as their own fault. Honestly, in American where capitalism is pussyfooting in every nook and cranny, I don’t blame people for not wanting to sit down with a book about the most efficient to handle your finances. Why is it on the people to educate themselves to succeed in a system that they’re forced into? Should the responsibility be in the hands of our financial institutions? People who are privileged to be in a position where they are taught financial literacy love to use in-app finance tools, where is the nudge to those who aren’t? People who are able to teach themselves to be financially literate seem to be able to ‘pull themselves up by the bootstraps’, but what about the people that can’t? They are still equally as deserving to receive that education. The main points in this article are the importance of habit breaking, correcting misinformation, offering correct information, and incentivizing the path to financial literacy.
