Why Financial Trauma is More than Just a Buzzword for Banks

A recent survey shows a majority of adults say they have experienced some kind of financial trauma. Banks need to rethink their existing product offerings to help clients better address their financial stress.

“Therapy speak” — or the colloquial inclusion of common psychological terms — has sparked a broad discussion on social media. At its best, “therapy speak” puts language to common challenges people face and can help to normalize the conversation surrounding topics that are considered taboo.

One example is “financial trauma,” a broad-reaching term in the new lexicon referring to stressors that impact how we view and interact with money. Financial trauma refers to issues as commonplace as growing up in a household where money wasn’t discussed, to more serious challenges like losing a job or going through a divorce, says Rod Griffin, senior director of public education and advocacy at Experian.

“It can be anything that creates financial stress,” Griffin says. “It can affect you emotionally and psychologically.”

Financial trauma has become a buzzword recently – but it isn’t anything new, Griffin says. The term simply describes the financial challenges that many Americans face. More than 68% of adults have experienced financial trauma at some point in their lives, according to data from Experian. It’s an especially common phenomena among Gen Z and Millennials, with 73% and 77% reporting having negative thoughts or anxiety about finances, respectively.

This is a clear sign that the products banks are already offering to support their clients may need to be reevaluated, says Rahkim Sabree, a financial therapist and accredited financial counselor.

“It’s very much a relationship-building process,” Sabree says. “Being very intentional about the efforts that banks make to engage with those communities, financial literacy is part of the problem, but not the only problem. Providing resources is a start.”

Offering financial education alongside tools that support clients’ individual needs is an important part of building a relationship. Banks should tailor their offerings to better meet the needs of the growing numbers of financially stressed Americans.

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Train Staff to Listen to Customer Challenges

Financial trauma is not one-size-fits-all, Sabree says. In the Black community, for example, racial discrimination by financial institutions has led to distrust of banks. That’s not an easy issue to address, he says, and isn’t going to be fixed by simply offering more financial education.

“There’s a larger generational trauma,” he says. “Those traumas are passed down through what is spoken, but also the process that is referred to as epigenetics. Trauma can travel through your DNA.”

Banks should first offer their frontline staff cultural sensitivity training, Sabree says. Explaining exactly what financial trauma is — and how it might manifest in different ways — will help staff better recognize the issues clients are facing and suggest products or services that could help them.

“It can be anything that creates financial stress. It can affect you emotionally and psychologically.”
— Rod Griffin, Experian

“We have to meet that with a level of empathy and understanding to create an environment where that individual feels comfortable with engaging,” he says.

Banks also want to make sure that frontline staff has a good grasp on your product offerings, Griffin says. Experian, for example, has a group of education ambassadors working closely with different teams throughout the company to educate them on the products they offer. The team also offers basic training to staff on topics like credit reporting and credit scores, Griffin says.

While training staff to understand and identify financial trauma can be positive, it’s also important to be mindful of regulations surrounding fair lending, Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling.

“You can’t make a lending decision outside what is allowed out of the fair credit protection,” he says. “But you do want to get to know your customer a little bit better to be able to serve all of their financial needs.”

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Look for Partnerships

For community banks and credit unions that may not have the internal resources to support clients struggling with financial trauma, partnerships can be a good option, McClary says. The National Foundation for Credit Counseling (NFCC), for example, partners with major banks and credit card issuers to offer personalized credit counseling and education programs. Big banks including Wells Fargo and Synchrony partner with NFCC to provide financial education.

“Working with an NFCC certified credit counselor can connect somebody to financial education workshops, but they can also benefit from one-on-one interactions that are confidential,” he says.

Banks can also consider partnering with financial counselors, Sabree says. The Financial Therapy Association, for example, connects professionals with backgrounds in therapy and counseling with financial planning and advising.

“I think some banks can look to partnering with financial counselors, who can give insight into financial behavior and work together to craft a strategy that addresses that mistrust and that trauma so their target audience feels more comfortable or starts to begin the healing process,” Sabree says.

“Being very intentional about the efforts that banks make to engage with those communities, financial literacy is part of the problem, but not the only problem. Providing resources is a start.”

— Rahkim Sabree

Banks can’t forget about their employees’ needs either. Staff members may also experience financial trauma. Offering employee benefits like mental health support and financial wellness tools can help address this internally.

“We often forget that our employees may have had the same financial traumas,” Griffin says. “Educating your own employees is step one.”

Dig deeper into providing financial education tools to customers:

Offer Personalized Products and Safety Nets to Vulnerable Customers

Offering personalized products and support can help address financial trauma, experts say. Where possible, get to know clients on a personal level and recommend products that might help their individual situations.

“You can start peeling back the layers of the onion to get to know the person a little bit better and identify appropriate services that can get people on the right track,” McClary says.

It’s also important to develop products — and rethink existing ones — in favor of providing more support to the most vulnerable customers, Sabree says. One example is overdraft fees, he says. Clients who are most likely to be hit with overdraft fees are often struggling financially already. If a client is unable to pay back that negative balance, plus the fees, their account could be suspended, which may ultimately mean they can’t open a bank account at another financial institution.

“I have noticed some community banks in particular giving a second chance banking product,” Sabree says. “More products like that that give people a second chance.”

Banks including Capital One and SoFi offer second chance bank accounts already. To help clients build credit, Experian offers Experian Smart Money, which is a digital checking account that helps clients build their credit. The company also offers Experian Boost, which helps clients build their credit scores without going further into debt. They can instead use common bills like a phone bill or a Netflix subscription to increase their FICO score.

“It’s finding ways to create tools and resources and financial products that address these issues,” Griffin says. “That’s a critical component of having financial success and being able to create financial tools.”

However banks choose to address financial trauma among clients, it’s important that it’s on the radar. Bringing these issues to the forefront will help create an important discussion around how banks can better support their existing clients — and ultimately bring in new ones.

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