Despite the increase in financial tools, many consumers are still financially vulnerable. In the U.S., 36% can’t handle an unexpected $400 expense, and the pandemic has worsened finances for nearly a quarter. Similarly, in Europe, COVID-19 caused 48% to report decreased wellbeing in 2020, with 20% accruing debt for daily expenses. With global governmental aids ending, consumers face increased risks. In the UK, 93% feel unprepared by education to manage finances, and 43% think banks should educate them. Financial decisions can have lasting effects. For instance, excessive debt can lead to bankruptcy, and 45% of U.S. boomers’ lack of retirement savings is pushing many elderly into poverty. Furthermore, easily accessible digital financial tools and lending services allow consumers to make uninformed decisions. The tragic case of a 20-year-old novice trader, who took his own life after facing suspected losses, emphasizes the shared responsibility of institutions to promote financial literacy.
Banks should proactively address financial literacy. Traditionally, banks profited from servicing debt, but low interest rates have reduced that income. Now, banks benefit more by aiding consumers in wealth growth. With many globally facing financial struggles, banks’ earnings are also at stake. How can banks effectively educate consumers about managing their finances?
Fintechs have introduced user-friendly tools and insights, including AI chatbots, notifications, and data visuals. These can be used in various banking services. Banks can adopt or purchase these tools from fintechs. Notifications can assist users in tracking balances and due dates, enhancing their credit and minimizing debt. Meanwhile, simulation tools can help users understand the outcomes of their financial choices.
Banks can enhance their data collection and analysis to create personalized digital customer experiences, offering timely and consistent financial education. By using cloud tools, banks can predict behavior, offering relevant content to aid decision-making. AI chat tools can assist consumers in understanding products, while brokerages can simplify complex trading options with safety measures to protect users. Ageas, a major insurance company, is developing analytics for personalized services and automation in various insurance sectors.
Educating customers on financial matters builds trust and loyalty towards banks. Informed customers make better financial decisions, reducing risks like loan defaults for banks. They are also less prone to rash decisions influenced by market fluctuations. Furthermore, a well-informed customer is more likely to use a wider range of the bank’s services, from investments to savings, benefiting both the individual and the institution.
Clegg, Stacey. “Why Financial Literacy Is the New Frontier of the Banking Customer Experience.” Banking, 13 Aug. 2021, www.globalbankingandfinance.com/why-financial-literacy-is-the-new-frontier-of-the-banking-customer-experience/.