A recent 2014 consumer financial literacy survey from Harris Poll notes that only 39% of U.S. adults are currently maintaining a budget and keeping close track of their spending. A startling 32% of those surveyed do not save any portion of their annual income. Yet, very few (27%) said they would be willing to seek professional financial/credit counseling. The general belief is in self-reliance. U.S. adults believe they are capable of solving these financial issues on their own.
How, then, does a financial institution appeal to consumers who believe in self-reliance, yet at the same time want to be more savvy with their finances because they have budgeting and savings issues?
The answer: Help them help themselves.
Cash (Or Pseudo-Cash) is King
Personal finance experts and budgeting pros insist cash is essential to keeping expenditures down. It is also the simplest form of budget control. In other words, a quick stop by the ATM on payday to pull out the budgeted amount can assist with keeping in budget. Once the cash is spent, there is no more money. The physical presence of the money is a better illustration of how much there is making the consumer more aware of how it is spent.
Some prepaid card options are now adding functionality that can help simulate this awareness through real-time account alerts. Other budgetary options allow users to segment their prepaid funds into individual accounts that are used for specific types of expenses. Groceries, for example, would pull from the “grocery” account while restaurants and entertainment would pull from a separate “entertainment” account. Once the money in each account is depleted, the card will no longer allow further expenditures for that particular budgetary segment.
How Financial Institutions Benefit
Providing easy cash access is something financial institutions have been doing for years. Encouraging use of those access points along with fun, cleverly-disguised budgetary hints can promote proper financial management. Try running financial knowledge and/or location-based contests to keep cash access and finances top-of-mind.
Some people simply dislike carrying cash…or love anything that uses technology. For this demographic, the answer to their budgetary needs could be feature-rich pre-paid cards. Setting up these systems could be an investment for the financial institution however customers and members using the service will become reliant on the perceived control of their expenses. Some may even be willing to pay small monthly fees in exchange for the ability to stringently segment and track their money.
Encouraging financial literacy and budgetary constraints for customers and members has the additional benefit of presenting the financial institution as a positive, non-intrusive resource. It also assists in preparing the consumer for other financial considerations with their bank or credit union such as retirement accounts, car loans, CDs, mortgage and home equity loans.