Can an App Improve Our Financial Health?
A Conversation with Jennifer Tescher, Center for Financial Services Innovation
Over the last decade, technology has shifted the way Americans approach everyday issues, like hailing taxis or even something as simple as ordering dinner. Unfortunately, those same solutions have not been applied across the board to crucial issues that have a real impact on people who need the most help. But as millions of Americans struggle with financial insecurity, innovative approaches are leveraging new technology solutions to address this crucial issue.
Many Americans continue to struggle with financial insecurity. Roughly 34 million households lack a checking or savings account.footnote 1 Forty-three percent of Americans struggle to pay their bills and half of all Americans lack a savings fund for emergency use.footnote 2 One in every five Americans has no idea how long they could make ends meet in the event of a job loss.footnote 3
Janis Bowdler, Head of Financial Capability initiatives at JPMorgan Chase & Co. recently spoke with Jennifer Tescher, President and CEO of the Center for Financial Services Innovation (CFSI) about the financial challenges facing many Americans, the importance of developing innovative solutions to help address this major issue, and how the Financial Solutions Lab will work to attract top technology talent to create solutions to improve financial health.
What is financial health and how financially healthy is the average American household?
Financial health is when consumers have a functioning day-to-day financial system that allows them to build resilience and opportunity. Following the financial crisis and the recession, the state of financial health in America is relatively weak.
Through research we've found that it's a very common phenomenon for Americans to struggle with cash flow and savings. A third of the people surveyed told us that if they lost their job or had an unexpected expense, a real crisis, they didn't think they could last more than three months.footnote 4 Another 20% of them didn't even know how long they could last.footnote 5
What's the long-term importance of financial health?
Families and individuals who find it challenging each month to pay their bills on time or make their cash flow work properly tend to inadvertently make mistakes that can hurt their credit score including missing minimum payments on credit cards or loans. Once your credit is damaged it is much more difficult to qualify for home and car loans, or qualify for high-quality credit cards. We've also found that when low-income families are forced to use non-bank services they spend, for example, the same share of their income on interest and fees in a year as the average American household spends on food. Families living paycheck to paycheck experience even greater financial insecurity when they live outside the financial mainstream.
On a larger scale, when individuals struggle with financial insecurity they tend to suffer from anxiety and stresses that distract them from work, their families and communities. While financial insecurity is not just a problem for Americans in the low-income brackets, overall financial stability does help families improve their financial positions, pay their taxes on time and allows them greater access to homeownership.
What makes the Financial Solutions Lab approach to improving financial health unique?
Jennifer Tescher: Almost every day we see commercials or read about a bank or tech company launching a new product or program, but rarely do those initiatives really focus on solving true consumer challenges. The Financial Solutions Lab has the consumer at the core and we're looking for entrepreneurs who bring that same focus and centrality of the consumer. We're really looking for good ideas that can make a difference wherever they may come from –a company, a small business or a nonprofit – and we'll be working with different kinds of organizations to help them scale in ways that will be appropriate for their business model.
Why is the Financial Solutions Labs an important part of helping to improve the financial health of America?
Jennifer Tescher: While we want to find the best, most innovative ideas, the Financial Solutions Lab is also about raising the profile of this issue and giving people inspiration to improve their financial health. And through the innovative ideas that are generated, we believe we can really encourage a range of providers throughout the industry to make significant changes. Perhaps the most exciting part of the Financial Solutions Lab is that we believe we can encourage a new way of thinking about the types of products that will help more Americans achieve financial health.
How can individuals improve their financial health?
Jennifer Tescher: Americans have an important role to play in learning how to manage their money well, but they need the right tools in order to do so. Too often it's easy to blame consumers for a lack of knowledge as the reason why they are struggling, but research has shown that financial education alone may not be effective. We need to be providing people with the kinds of tools, products and experiences that enable them to make smart choices in the moment and that give them the kind of information they need to really make a smart decision.
What is the Center for Financial Services Innovation doing to help Americans improve their financial health?
Since our founding in 2004, CFSI has been shining a spotlight on the needs and challenges of Americans who lack access to the kind of products and services that they need both to get by day-to-day and get ahead in the long term. We've been using a bully pulpit to share more about the needs of those consumers and to spur innovation, largely technology-led innovation, among the next generation of financial services providers.
That is why we are so excited to manage the Financial Solutions Lab with founding partner JPMorgan Chase & Co. Together with partners from the tech world and the financial industry, and armed with research, we hope to find and support the next generation of social entrepreneurs who really want to solve critical consumer financial challenges by creating products and tools that will help consumers succeed.
One of the first big activities of the lab is a nationwide competition – a new, competitive grant program that is about to inspire some top tech talent from around the country to engage in this issue. We're looking for entrepreneurs and innovative products and services that are helping consumers better manage cash flow. The winners will receive not only financial support to help grow their product or service, but also a range of nonfinancial support like access to legal and regulatory resources, connections to potential national business partners, media exposure and the opportunity to engage with a cohort of likeminded companies and organizations to focus on these consumer challenges.
The Center for Financial Services Innovation (CFSI) is the nation's authority on consumer financial health, leading a network of committed financial services innovators to build a more robust financial services marketplace with higher quality products and services. Through its Compass Principles and a lineup of proprietary research, insights and events, CFSI informs, advises, and connects members of its network to seed the innovation that will transform the financial services landscape.
JPMorgan Chase & Co. is proud to partner with CFSI on the Financial Solutions Lab: a five-year $30 million initiative that brings together social entrepreneurs and experts in technology, behavioral economics and design to create innovative solutions to help consumers increase savings, improve credit and build assets. This cross-industry initiative intends to catalyze the development of innovative, technology-enabled strategies, products and services that align with consumers' financial needs. To learn more click here.