Creating Financial Wellness Using Artificial Intelligence (AI)

Earlier this month I had the chance to listen to a webinar in which Aite Group discussed a study that explored consumers’ attitudes toward financial matters, determined the awareness and usage of personal financial management (PFM) tools, and gauged consumers’ willingness to use a virtual financial wellness coach that could help them improve their overall financial health.

What I learned was this:

The majority of respondents to the Aite Group survey use their bank’s or financial services provider’s online, mobile banking, or PFM tools – such as budgeting, spending analysis, and savings goals – to track their day-to-day finances:

  • 71% of 22 to 34 years old
  • 62% of 35 to 49 years old
  • 56% of 50 years old and older

Their interest in these tools, however, has fizzled away over time.

But with artificial intelligence (AI) trending toward the mainstream, financial institutions have an opportunity to reinvent how they deliver PFM tools and how they can create more interactive experiences that will help consumers. For financial institutions to understand the opportunity to reinvent PFM tools, it’s important that they understand how consumers manage their finances today.

For instance, some consumers track their finances by using PFM tools offered by firms such as Mint or Quicken. One in five use spreadsheets to track their finances and one in four track their finances using their monthly bank or financial services provider statements.

Also of note, one-third of 22 to 34 year olds have used PFM tools, not just online banking, according Aite Group. It’s 31% for 35 to 49 year olds and 21% for those 50 and older.

Aite Group said financial institutions also need to understand a customer’s attitude toward financial matters, and where they could use the most help managing their finances. In the Aite Group survey, for instance, consumers said they struggle with paying for unexpected expenses.

  • Fifty-nine percent of respondents indicate they can comfortably pay their standard monthly bills for their household, even when there are a few extra bills that month.
  • Four in 10 respondents indicate they have saved some money, whether it’s that they have it an account or they add money to a saving account two times a year through work or on their own.
  • About four out of 10 respondents indicate they get nervous when they get large bills.
  • And, about three out of 10 respondents are worried about money and whether they will be able to pay their bills and they get anxious when they think about their financial situation.

Given the last three bullets above, Aite Group says there’s an opportunity for financial institutions to create capabilities that would really allow customers to understand how their spending impacts their ability to pay their bills, to save money, and to improve their overall financial health.

There’s also an opportunity, according to Aite Group, for financial institutions to help customers plan for unexpected emergencies or bills that may be larger than they expect. And, there’s an opportunity to provide customers with tools that allow them to create a savings plan, to help them understand how savings improves their overall financial health, and to give them multiple ways to save and meet those goals.

Knowing a consumer’s willingness to link their accounts is one way to get a sense of a consumer’s willingness to share data. According to Aite Group, the majority of consumers who have used PFM tools have linked at least one account. More than three-quarters of consumers have linked one or more of their accounts. And twenty-nine percent of 22-to-34-year-old consumers and 35-to-49-year-old consumers have completely linked all their finances.

In essence, the Aite Group research shows that consumers are willing to link their accounts if they believe they are going to better insight in personal financial management.

So, what are some opportunities in the way PFM exists today? Well, one of the limitations with PFM today is that it requires that a customer maintain their budget and savings goals. And that means that consumers need to digest that information themselves to be able to identify ways to improve their financial health. And since, in some cases, the amount of effort that is required to maintain budgets and savings goals is so great some customers forget about them.

Given that, Aite Group introduced the concept of a virtual financial wellness coach (VFWC) that would help consumers understand their financial picture, and Aite Group examined how willing consumers would be using a VFWC and in what situations they would use a VFWC to improve their overall financial health.

In its study, the VFWC would help a consumer:

  • See where he or she is spending money, get account balance projections, and understand how much they can spend based on upcoming income and expenses.
  • Set up savings goals, create a plan to achieve a goal, and monitor progress toward the goal.
  • Compare a consumer’s expenses to the expenses of other people like them to see where he or she may be able to optimize your spending.
  • Get real recommendations, information, and advice on how to improve overall financial health.

And what they found is this:

  • Over three-quarters of 22-to 49-year olds are interested in using the VFWC.
  • Seventy-nine percent of 22-to-34-year-old consumers and 77% of 35-to-49-year-old consumers indicate they are moderately to extremely interested in using the VFWC.
  • Sixty-two percent of those 50 years old and older are moderately to extremely interested in using the VFWC.

Aite Group also learned as part of its survey:

  • Consumers are interested in reducing debt, saving money, and tracking their finances to improve their financial health.
  • Respondents are the most interested in using the VFWC to reduce debt, achieve savings goals, track their finances, and optimize their financial health.
  • They are the least interested in using the VFWC to get help with tax planning and preparation or obtain guidance from a financial adviser.

In essence, Aite Group learned that 1) consumers are asking for help with the everyday banking needs and everyday financial goals and 2) consumer’s willingness to share data with a VFWC to get advice declines with age. For instance:

  • About 60% of 22-to-49-year-old respondents are definitely-to-possibly willing to share information to get advice.
  • Forty-four percent of 50 years old and older respondents indicate they are either definitely-to-possibly willing.

Key takeaways

–  Build experiences that are first centered on making users aware of their financial activity. Once consumers become aware of how they are spending money, begin layering in more data to provide them with insight into their finances. Then provide them with actionable advice on how to meet their savings goals and reduce debt.

–  Consider the role that chatbots and interactive assistants can play in resurrecting the concept of PFM. Interactive conversational touch points could be the format that finally increases consumer engagement in this topic.

–  Interest in the virtual financial wellness coach is driven by age. The age brackets that showed the most interest in the virtual financial wellness coach were 22-to-34-year-olds and 34-to-49-year-olds. Financial institutions should look at these age groups as their target markets for building virtual financial wellness coach capabilities.

Source: Aite Group

As part of the presentation, a representative from Envestnet | Yodlee also addressed how the firm is using AI to help consumers achieve financial wellness.  In general, the firm wants to build digital tools (for institutions) that help consumers build daily systems that simplify and automate day-to-day financial management and long term financial planning.

On the plus side, traditional PFM helps consumers organize and visualize financial data for a holistic picture. On the minus side, its missing critical components of financial coaching, especially for those less financially literate: How am I doing? What should I do next?

According to Envestnet | Yodlee, traditional PFM tools work well for expert users but are not optimized for non-expert users.

Actionable financial wellness gap analysis

As part of its study, Envestnet | Yodlee evaluated the four-step financial coaching process:

And what they found were gaps around the diagnostics and guidance components. They further researched the types of things that consumers were looking for and discovered that consumers were looking for real time actionable diagnostics, dynamic calculations, and personalized insight.

The firms then decided to build a tool that was intuitive and easy to use where AI did all the heavy lifting. The key components of the EY tool are:

  1. Cash flow projections (organizing recurring in and out flows). Proactively tackle basic chores like managing bills and account balances.
  2. Financial health check. Gives real-time diagnosis of your financial health across spending, saving, borrowing and planning, and recommends next steps.
  3. Peer benchmarking and insights. Use advanced AI techniques to identify behavior patterns, predictions of future behavior, and peer benchmarking insights.
  4. Educational content and calculators. Improves your customer’s financial literacy. Build what-if scenarios, and take action.
  5. Conversational assistant. Handle multi-step tasks though simple voice commands.

Read and and

Financial Wellness Essay Collection

This collection of essays provides a thought-provoking array of views and perspectives related to financial wellness. Financial wellness concepts and programs have become an increasingly important area for both employers and employees to consider as greater responsibility for financial planning and retirement security has been shifted to individuals. This essay collection was sponsored by the Society of Actuaries’ Committee on Post-Retirement Needs and Risks (CPRNR) and is part of an ongoing essay series exploring different topics related to managing post-retirement risks. Download the complete essay collection.

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