The cost of living is rising, and so is the cost of financial illiteracy. In 2022, consumers lost an average of $1,819 per person due to lack of financial knowledge – that’s a 30% increase from the previous year.
People know they need financial education and they’re asking for help. As their financial institution, banks are positioned to provide guidance and solutions.
Financial wellness, defined as the ability to make confident, well-informed money-related decisions resulting in both short-term and long-term financial security, can drive long-term revenue for banks. It also supports greater financial resiliency and increased financial opportunities for consumers, whether it’s access to credit, investments or other financial offerings. These are key tenets of the Community Reinvestment Act and, given the upcoming changes to the rule, financial wellness and education programs are more important than ever.
Under the proposed CRA changes, financial institutions, depending on their size, will be tasked with collecting and reporting on new categories of data. Banks will need to share metrics on lending activity, including new metrics to measure loan distribution, retail product and service offerings, and more. Banks must also show a strong understanding of where their customers are located, as the shift toward digital banking now means banks’ retail footprints often expand outside of their branch network.
The decline of in-person banking has caused financial institutions to shutter many branch locations, particularly in low and middle-income areas. In fact, 93 percent of bank closures since 2008 have been in LMI areas. As a result, community banks must find creative ways to engage with LMI populations – both online and off.
Digital tools make it possible for banks to engage and empower customers with financial wellness resources, automated saving tools, rewards and more, regardless of location or time of day. At the same time, these technologies can produce actionable data for CRA reporting.
Some banks are promoting financial literacy and healthier savings habits by bundling financial education services and automated savings in a consumer-facing app. When consumers engage and set up a savings account, this creates referral opportunities for new deposits and cross sales. With today’s technology, cross sales, data on deposits and other activity can be analyzed by zip code and census tracts, producing exam-ready information for CRA and community development financial institution reporting. By combining financial education with the latest digital tools, banks can streamline their CRA and CDFI reporting ahead of the rule changes.
Beyond gaining better access to data for reporting, greater visibility into the performance of their financial education activities can help banks identify and address gaps in their CRA efforts.
Community banks have a vested interest in helping their customers achieve financial health. To do so, they must evaluate their existing financial education and wellness offerings to ensure they meet the needs of their customers. By pinpointing those gaps, banks can adjust their programs to best serve the needs of their communities.
For example, perhaps a bank needs to find ways to help those underserved in its community establish and build their credit scores. A financial education program focused on growing savings and improving credit scores, combined with the right product offer (such as a small loan) can help underserved individuals establish a credit history and build up their credit score.
In some cases, banks may opt to partner with a local organization or fintech to implement new education programs or services that resonate with their market. With greater access to data, it is much easier for banks to find the right fintech partner or business without getting distracted by the latest innovation on the market that looks cool, but is not a great fit for what the bank is trying to solve.
Whether it’s an informative video about different types of savings accounts or offering small rewards for good savings habits, there are countless ways banks can incorporate financial education into the customer experience.
For banks looking to launch new financial education initiatives or expand on existing programs through new partnerships or service offerings, it’s worthwhile to align those efforts under the impending CRA rule changes. Financial education goes hand-in-hand with CRA compliance, as these programs provide institutions with an opportunity to help individuals make the best financial decisions possible.
Kathleen Craig is founder and CEO of Plinqit
