The win-win for banks promoting financial literacy

Data can help institutions provide educational content to raise their customers’ knowledge base while also helping with retention and cross-sell strategies.

Financial wellness is critical to living a sustainable life and achieving long-term financial stability.

When individuals are not equipped with the knowledge to make solid financial decisions, they’re more likely to take on debt, which often leads to stress that affect other areas of life, including one’s health and personal relationships.

Financial illiteracy has other costs, too. According to a new survey from the National Financial Educators Council, a lack of personal finance knowledge cost $352 billion in 2021, or an average of about $1,400 per person. Nearly 20 percent of respondents said they lost over $2,500 last year due to gaps in financial knowledge.

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It’s never been more important to empower those who experience financial stress because today’s Americans are shouldering more financial decisions than previous generations. Instead of company-managed pension plans, most Americans now participate in 401(k) plans. Savings, investment and financing options are more sophisticated than ever, all with varying interest rates, which creates even more confusion for the consumer. Without adequate financial education, many individuals find it difficult to make smart financial decisions, let alone feel confident in their decisions.

Banks and credit unions are in a unique position to help by providing customers with educational content that not only improves customers’ financial literacy but helps with their own retention and cross-sell strategies. Data can help institutions with this effort.

Today, many banking institutions make assumptions about what customers need based on age segments. For instance, mortgage products are typically targeted toward customers in their 30s and 40s, and are less frequently offered to customers past retirement age. But these are missed opportunities – what about the customers who are looking to downsize and buy a smaller home after retirement? They may need guidance on finding a mortgage rate that works on a fixed income.

Banks should use data beyond demographic data like age to meet customers when and where they are in their financial journey so they can offer appropriate financial guidance. This requires looking at data points, including what customers are saving for, what their transactional data looks like and what financial education content customers are clicking on when banking online or via mobile.

When banks and credit unions can analyze a customer’s transactions, their savings and other financial goals, as well as which financial education resources they’re viewing, a more complete picture of that customer emerges. As more customers interact with their bank through digital channels, it is crucial that banks find ways to use data and ensure these digital-first interactions feel personal and tailored to each customer’s needs.

By gaining a more holistic view of their customer and their unique financial goals, institutions can target their messaging accordingly. For example, if a customer sets a goal to save $3,000 this year for a small bathroom remodel, their bank can recognize that the customer may benefit from education around home equity lines of credit.

Another avenue is to push intentional content that provides additional context through emails and notifications. For instance, if an institution notifies a customer about a transaction, a change in their account or a new reward, they may link to an article or blurb with additional details about the notification. They can even help inform customers of industry trends that could impact their financial future. Buy now, pay later financing is one example of a trend that banks can educate customers on. If a customer signs up for BNPL, their bank can send them content that explains how to assess and choose from different financing options.

Finding ways to naturally incorporate financial education in customer interactions is key because, according to a Milken Institute study, 29 percent of Americans do not feel comfortable asking questions about finances or financial products in the first place. Educational content presented in a contextual, understandable and meaningful way can position financial institutions as mentors while supporing more effective cross-selling efforts that help banks form deeper connections with their customers.

By enhancing financial literacy efforts with personalized, targeted messaging, banks and credit unions can stand out from their competition and forge stronger customer relationships. The institutions that succeed as educators will emerge as true heroes in the fight for improved financial health.

Kathleen Craig is founder and CEO of Plinqit.