6 minutes
Credit unions, we have to tell you about your future! (Spoiler: It hinges on personalized financial guidance.)
Americans have been on a personal finance roller coaster for the past few years, so it’s no surprise that 77% of consumers are experiencing anxiety about their financial situation.
As consumers face the highest inflation rate since 1981, rising interest rates and a lack of affordable housing, almost half anticipate adding to their debt in the next six months to cover their expenses.
In this uncertain economy, financial literacy is an essential skill. Unfortunately, only 1 in 5 Americans feel they have sufficient knowledge to make sound financial decisions. On the bright side, they know they lack financial skills, and they want to fix it.
Credit unions are on the front lines of their members’ financial literacy battles—but they’re failing. Because of this, consumers are increasingly turning to nonbanks to pick up the slack. To help their members win their finance battles and to stay competitive, credit unions must understand what’s important to them—personalized financial guidance.
To paraphrase the words of Marty McFly: Credit unions, we have to tell you about your future.
We Get It Already—Digital Adoption Is Accelerating
Most consumers already rely on digital banking offerings, especially post-pandemic. But they’re not interested in run-of-the-mill digital apps. They want something that delivers true value.
It’s old news that digital adoption is accelerating. This was always inevitable, though it was fast-tracked by the pandemic. That said, mobile banking apps don’t exactly have a high rate of engagement across a wide breadth of features.
Breaking it down by the numbers, the most used features, according to a recent survey, are mobile check deposit (35%), viewing account balances (33%) and transferring funds between accounts (31%). Essentially, today’s banking apps are used for the most basic banking functions and nothing more.
These features haven’t changed much throughout the history of online banking, leaving credit unions unable to really claim that they’re innovative. Ultimately, it’s more about keeping up with offering the most basic tools consumers expect.
This mindset must change.
Financial Literacy as a Self-Wellness Journey
Self-wellness is a continuously growing field that today’s consumers highly value. In fact, the global mHealth apps market is expected to grow at a compound annual growth rate of 11.8% from 2022 to 2030 to reach $105.9 billion.
However, an often-neglected facet of wellness and self-care is financial wellness. The problem is that consumers are starting to feel the effects of rising inflation that are outpacing salary gains. Consequently, they’re dipping into their savings and making poor decisions. After all, people tend to make bad choices in times of stress and fear.
How bad is it? A recent CivicScience survey found that the percentage of people who are now tapping into their savings already exceeds the percentage of those who say they were able to grow their savings during the pandemic. Nearly 40% of all adults (or 44% of Americans with savings) said they have unexpectedly dipped into their savings this year.
In total, 64% of Americans with savings say they have used their savings to finance purchases this year. More than one quarter used savings to pay for essentials like groceries and gas, one quarter used savings to pay for utilities and over 20% used savings to pay for medical bills this year.
Compounding this issue is the fact that financial literacy is already low among U.S. consumers. Sadly, the United States does not rank well in financial literacy compared to other developed countries, according to GoBankingRates. Currently, it’s at 57% overall but varies state to state. Additionally, only 25 states offer mandatory economics courses to earn a high school diploma, and only six require personal finance classes.
While financial literacy is low among U.S. consumers, most consumers want to better understand personal finance, especially younger generations who also have higher expectations for digital. According to a survey by Experian, three out of four Gen Zers think high schools should require financial classes, and nearly half (49%) have an interest in learning.
Removing the ‘Shame Factor’ From Personal Finance Apps
Basic digital banking features like mobile check deposit, viewing account balances and transferring funds between accounts will not help consumers on their financial wellness journey. They’re table stakes and not nearly innovative enough to create greater engagement.
To aid consumers on their financial wellness journey, financial institutions must implement features similar to a fitness app. And they must remove the shame inherent in current transaction-focused PFMs.
Consider how a fitness app functions. It rewards users for meeting specific goals and encourages positive behavior. What it doesn’t do is remind them of bad choices. Imagine if a fitness app constantly reminded you of how many calories you consumed rather than how many steps you took. Consumers will eventually avoid that app.
Now, consider how a typical PFM functions. For most, they simply provide you with spending data—how many times you went to the Starbucks drive thru and bought a $5 coffee rather than putting that $5 towards your savings goals. This isn’t exactly encouraging and is perhaps a primary reason why consumers are not engaging with their banking apps.
How can credit unions change this?
Increasing Engagement Through Gamification
User engagement is higher through the use of gamification. But what exactly is gamification?
Since its introduction over 20 years ago, gamification is one of the most popular buzzwords of our century. Companies across all industries are prioritizing gamification to increase engagement and drive business growth. Credit unions should be, too.
The problem with the term gamification is that many believe it’s more for video gaming. For banking apps, the common misconception is that it’s turning an app into a game. This isn’t the case.
Put simply, gamification is taking an everyday task—like banking—and making it fun and engaging through things like rewards or levels. It’s also taking a different look at a certain function and reimagining it for today’s consumers and their specific needs or expectations. For instance, as financial wellness gains traction, gamification is a way for credit unions to improve stagnant banking apps and turn them into an engagement tool. After all, credit unions are now in direct competition with nonbanks and digital disruptors. Their future depends on this.
To remain relevant, credit unions must combine the desire for personalized financial guidance with a gamified digital approach, such as a Financial Health Level, focused on helping to improve a member’s financial life.
Personalization is the key. Credit unions must have a leveling system that is based completely on each member’s financial lifestyle. Simply showing how much they’ve saved isn’t helpful. Customizing and personalizing to show how much closer they are to having an emergency fund based specifically on their income and debt obligations is helpful.
By combining the importance of financial wellness with gamification and personalization, users not only have a more interactive and engaging way to bank, but they’re also able to improve their financial health in a less stressful and more meaningful way. It’s a win-win for both credit unions and their members that will lead to a brighter future.
Parker Graham is founder/CEO of Finotta, a personalized digital finance platform provider.
