Can an App Improve Your Financial Health?
By Colleen Briggs, Program Director, Financial Capability Initiatives, JPMorgan Chase & Co.
Rapid change has become an everyday part of life for Americans. Whether it is new and emerging technology, or the various shifts that happen in today's interconnected world, people experience uncertainty everyday. According to a new report from the JPMorgan Chase Institute, this volatility extends to their finances, affecting both their income and spending, and often not in tandem. Households often experience a drop in income while also having a necessary increase in expenses, such as health care bills or a major car repair. And most households have not set aside enough money to weather these unexpected changes. The same report found that this is not just a low-income issue. Americans across the income spectrum are having difficulty managing their financial lives.
However, new technology is being developed to help address this mismatch between household income and expenses. We now see the same innovation currently utilized in many other parts of our lives being applied to how we improve our financial health. In 2014, we launched the Financial Solutions Lab at the Center for Financial Services Innovation (CFSI), to help enhance and expand these solutions. The Lab just announced the first class of winners who developed new technology-enabled tools to help people manage their daily finances on a tight budget. The nine winning solutions will help people save, manage their bills, access short-term credit and reduce debt. These innovators will each receive $250,000 in capital and technical assistance, including cutting-edge consumer and design insights, and industry expertise and mentorship.
While we know one app isn't going to solve financial insecurity in America, technology provides a tremendous opportunity to help us improve the efficiency and effectiveness of new products and services that promote financial health. By engaging leaders in financial services, technology, design and behavioral economics, the Lab is convening some of the best minds to expand the reach of these solutions and share best practices to catalyze more positive change.
- Ascend Consumer Finance reduces risk on current loans and rewards the borrower by lowering interest payments thanks for responsible financial behavior.
- Digit is an automated savings tool with that uses an algorithm to move small amounts of money from checking into savings based on spending habits.
- Even turns the inconsistent income of hourly and part-time workers into a steady salary by saving money from above average paychecks and boosting low paychecks.
- LendStreet is a marketplace-lending platform which helps borrowers reduce their debt and rebuild their credit.
- PayGoal is a workplace tool that enables workers to put more wages toward their principal financial goals using a simple, guided mobile experience.
- Prism is a comprehensive bill payment and management app that helps people across the country better manage their personal finances by giving them a platform to review, manage and pay their bills for free.
- Propel's technology simplifies the food stamp application process by streamlining enrollment, eliminating paper documents, and providing a phone-friendly mobile interface.
- Puddle is a platform for reputation-based borrowing, allowing anyone with a debit card to make small short-term loans to other trusted borrowers.
Earlier this year, Janis Bowdler, Head of Global Philanthropy initiatives at JPMorgan Chase & Co., 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.
Q: What is financial health and how financially healthy is the average American household?
Jennifer Tescher: 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 1 Another 20% of them didn't even know how long they could last.footnote 2
Q: What's the long-term importance of financial health?
Jennifer Tescher: 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 scores, 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 [it] allows them greater access to homeownership.
Q: What makes the Financial Solutions Lab approach to improving financial health unique?
Jennifer Tescher: Almost every day we see commercials or read about a 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.
Q: 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.
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.
The JPMorgan Chase Institute is a global think tank dedicated to delivering data-rich analyses and expert insights for the public good. Its aim is to help decision makers – policymakers, businesses, and nonprofit leaders – appreciate the scale, granularity, diversity, and interconnectedness of the global economic system and use better facts, real-time data and thoughtful analysis to make smarter decisions to advance global prosperity. Drawing on JPMorgan Chase & Co.'s unique proprietary data, expertise, and market access, the Institute develops analyses and insights on the inner workings of the global economy, frames critical problems, and convenes stakeholders and leading thinkers. For more information visit: www.jpmorganchaseinstitute.com