67% of U.S. Consumers Say They Suffer Financial Hardship at Least Occasionally. How Can Banks Help?

U.S. consumers have a strong sense of personal financial goals, but they struggle to achieve them, according to our latest survey in our ongoing original research that reveals people’s perceptions around finances. To get specific, 66% of people say they want to save more money, 48% say they want to reduce or avoid debt, 40% say they want to improve their spending habits, and 20% are focused on investing or entrepreneurial ventures. 

Unfortunately, two-thirds of respondents say they experience financial hardship at least occasionally, with 15% saying they experience it almost constantly and 19% saying they experience it somewhat regularly. Unsurprisingly, those who make less than $50,000 a year are far more likely to say they experience hardship — even though 24% of those with higher incomes still say they experience it at least somewhat regularly.

When it comes to how people say they spend their money, some respondents had a difficult time pinning down exact ratios. On average, people say they commit 60% of their income to necessary expenses, 28% to personal spending, 25% to paying down debt, and 21% to savings and investments. Given that these percentages add up to more than 100%, it’s clear that people tend to lack precision in their estimates, which implies that they really don't know where their money is going, much less how to adjust their spending to achieve their goals.

What Financial Service Companies Can Do

So, what can the banking industry do about all of this?

Here are a few suggestions.

1. Help people aggregate their accounts so they can see their full financial picture. Given the number of people who say they experience financial difficulties as well as the number who are unsure how much they spend on different categories, financial institutions and fintech companies can offer a 360-degree view of their financial situation by helping customers aggregate their accounts. With the ability to see exactly what’s happening in each account all at once, consumers will better understand what money is going where. Of course, aggregation isn’t just about displaying balance and transaction information. It’s also about laying the foundation to help people make sense of their data.
2. Provide tools that make sense of the data for them. Tragically, 20% of respondents say they didn’t engage in any financial planning in the last year and nearly half of respondents either don’t use a financial management app — many because they believe their financial institution doesn’t offer one. Since 66% of people say they want to increase their savings and 40% say they want to improve their spending habits, there’s plenty of room for financial services companies to step up on this front and make a difference in the lives of consumers who need it. 
3. Get proactive with insights and nudges that encourage healthier financial behaviors. For many people, financial planning is a chore and a reminder of personal failure. This doesn’t mean that the financial industry shouldn’t offer personal financial management apps, especially since nearly 80% of those who do use an app offered by their financial institution say they are at least somewhat or very satisfied with the tool. But it does mean that financial services companies can make the process simpler and more intuitive — more like a money experience instead of money management.

This is an enormous opportunity for banks, credit unions, and fintech companies alike. As Bradley Leimer, Co-founder at Unconventional Ventures says, “Banks need to make customer lifetime value actually translate to a lifetime value from the financial provider — not the other way around.” Forrester Research adds, “Focusing on customer loyalty is no longer just a smart strategy. In an age of empowered customers, it is an imperative.” By offering and then promoting intelligent financial guidance, financial services companies can produce an experience that builds life-long brand loyalty and increases engagement with customers. 

True Financial Health = Not Worrying About Money

The end goal here is to empower people to be financially strong, such that they create a mutually benefiting relationship with their financial services provider. To figure out what people say financial health looks like in more concrete terms, we asked respondents for their definition of the term. What we found was that, more than any other option, people think of financial health as “the freedom to not worry about money.” 

Companies that can offer a solution that helps on this front by automating the complex and burdensome process of navigating finances will help people increase their savings and income and achieve true financial health. Companies that are flatfooted on this front, by contrast, will likely miss out on the return on investment such programs bring.