Tearsheet/Tanaya Macheel: Financial incumbents are starting to care about financial education

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Modern Banking Experience

Financial incumbents are starting to care about financial education

    Fintech companies have been trying to change the model by shifting the focus from their existing and target millennial customers to the next generation: their kids

    It’s not clear what financial education is exactly and existing initiatives haven’t been successful; with products are the driving force of behavior in the new economy, it should be built into product design

Tanaya Macheel | FEBRUARY 22, 2018

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Financial education is getting a long sought-after spotlight.

On Wednesday, Greenlight Financial Technology — the creator of a smart debit card for kids, teens, and college students — closed $16 million in a Series A funding round. Its investors went beyond your traditional venture capital firm, including a disparate coalition of  financial services bigwigs like SunTrust Bank and Ally Financial as well as the Amazon Alexa Fund, among other VCs. Greenlight, whose mission is to help strengthen financial literacy among kids and give parents a platform to raise “financially smart kids,” will use the new funds to develop its products.

That coalition of Greenlight partners signals a renewed understanding of the reality of most Americans’ financial lives — 57 percent of Americans are financially unhealthy according to the Center for Financial Services Innovation — by legacy financial services companies coming to terms with the fact that they need to be in the business of financial health in order to keep customer relationships in tact over the long term.

“Financial services providers are rethinking what the mass market is, what it looks like to be financially unhealthy and whats really going on in customers lives. I look at this [Greenlight] card and I think its responsive,” to the financial innovations put forth by fintech companies today, said Karen Andres, a relationship manager at the CFSI. “If you’re not taking care of your customers today and helping them build their financial health they won’t be your customers tomorrow.”

Financial education has a problem. Other than the fact that it’s important, it’s not clear what it is or how it’s consumed and in any case, existing initiatives — usually relegated to content marketing — haven’t worked. If they did, personal finance wouldn’t be such a daunting concept for those who need the initiatives most.

But over the last year fintech companies have been trying to change the model by shifting the focus from their existing and target millennial customers to the next generation: their kids. For example, last year Current launched with a platform that merges task assignments from parents with digital payments to children; earlier this month, microinvesting app Stash said it would use fresh funding to develop a product that lets customers invest on behalf of their kids.

To achieve financial health, the idea of financial education or financial literacy needs to change from one focused on gaining knowledge to one focused on changing behavior, which is more about financial capability than education.  The U.S. economy today is different from that of previous generations in that products are the driving force of behavior, said Current CEO Stuart Sopp, and that calls for an overhaul in the way products are designed.

“Teaching someone something is a very paternal thing we’ve seen in this capitalist economy and we’re into this really different economy now,” he said. “We’ve recognized a marked difference in the independence of this generation… There are probably more adults than in previous generations that get things like saving and investing and are driving the conversation home much more so than in previous generations. So you have to build tools in a way that is different to previous generations.”

Ally Ventures, the strategic investment arm of Ally Financial and one of Greenlight’s investors, for example, has strived to advance financial literacy and education through education courses, tips, tools and online resources designed to help customers manage their money more effectively, but it also wants to pursue opportunities to incorporate education and literacy into its offerings, said Dinesh Chopra, chief strategy officer at Ally Financial.

“We believe the combination of educational content and smart products and services can help empower consumers to achieve their financial goals,” he said.

Large institutions are often criticized for being slow innovators. Slow as they may be, they’ve been responding to innovative products focused on financial health at their own speed. BBVA Compass acquired Simple in 2016, JPMorgan Chase began offering Chase Liquid, a prepaid card designed for low-income customers with difficulty accessing good financial products, Wells Fargo is launching a sub-branded Greenhouse account with financial management capabilities built in. While they target the poor and financially unhealthy, they don’t always provide the educational tools to help them out of it. That’s starting to change. Traditional banks now build content around financial management and planning that’s short and easy to consume, but do so in collaboration with product design, Andres said.

“We’ve started to see shifts in the direction providers are taking to help customers learn by doing — in this case, with the Greenlight card — or to think about changing the way they conceptualize financial literacy by providing information to customers differently: in smaller chunks and at key moments of decision, rather than the old classroom-style half-hour module on a weighty financial topic,” she said.
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