Banks Providing Financial Health Scores Designed to Improve Your Finances
Inside Subprime: Feb 1, 2019
By Lindsay Frankel
Only 28 percent of Americans are financially healthy, according to a survey conducted by the Center for Financial Services Innovation. Most are merely coping, with 47 percent of U.S. adults spending everything they earn or more. A growing number of banks and other financial institutions are hoping to improve Americans’ personal finances by providing scores for financial health. The intent is for people to take a look at their spending and saving behavior and improve their habits over time.
Some financial institutions already using financial health scoring and other companies hope to implement the scoring system in the future. The scores are different than credit scores, which show how well a person has historically kept up with financial obligations. Financial health scores take into account a variety of factors, from how people save in the short term to how they plan for retirement.
Because the scores are personalized to the individual, they might be more motivating than previous approaches. “It’s not textbook content,” explained John Thompson, chief program officer at CSFI. “It’s real, and it’s specific to your situation.”
There’s already compelling evidence that these scores can push people to improve their spending and saving habits. USAA began providing financial wellness scores in 2015, and 800,000 members have used the tool. Scores have increased 5 percent year over year, on average, since the program launched. In addition, the bank has seen an 18 percent increase in members following the tool’s recommendations, such as putting more aside for emergencies.
One credit union in Washington ran a pilot program last fall, with promising feedback from members. The credit union’s vice president of public relations, said, “We hope to and plan to deploy a bigger assessment tool,” but not before determining what member needs the credit union should meet to spur score improvement. Members of the pilot program suggested online education or one-on-one coaching.
Other digital tools, such as on-demand pay services, intend to improve financial health by decreasing the reliance on payday loans. It will likely be a combination of innovative tools that will improve financial well-being for most people.