Checking Accounts and the Financially Struggling Majority. Member Exclusive Report from CFSI s Consumer Financial Health Study

Transcription

1 Checking Accounts and the Financially Struggling Majority Member Exclusive Report from CFSI s Consumer Financial Health Study

2 We provide this CFSI Member Exclusive as a resource to create new products, calibrate existing ones, and communicate the benefits of their use to improve consumers financial health. The information is designed for use by product managers, segment managers, marketing managers, and community development/affairs managers to better understand consumers needs. The data and visuals in this presentation are easy to use to inform ideation and business strategies that support consumer financial health. We encourage you to share this asset widely within your organization and to use the data and visuals in external presentations and communications. When you use an excerpt of this report, please cite CFSI as the source: Member Exclusive Report from CFSI s Consumer Financial Health Study: Checking Account Holders CFSI, October Per your 2015 CFSI Network membership agreement, we ask that you refrain from distributing this report in its entirety outside your organization. If you have any questions about this, please contact your CFSI relationship manager. 2

3 Table of Contents Key Findings... 4 Addressing Customer Needs with Checking Accounts..10 Financial Health Recap...16 KF:1 Financial Health of Checking Account Holders KF:2 Transaction Accounts as Saving Vehicles.. 30 KF:3 Technology Use Among Checking Account Holders..35 KF:4 Income Predictability & Irregularity Among Checking Account Holders Checking Account Holder Demographics

4 Key Findings: 1. Half of checking account holders are struggling financially. 2. Half of checking account holders save in a checking account or on a prepaid card. 3. Struggling checking account holders are active mobile banking users making it a strong tool to reach them. 4. Checking account holders need help handling fluctuating income. Company Logo

5 Financial Challenges of Checking Account Holders For more detail, refer to slides

6 More Than Half of Checking Account Holders Struggle For more detail, refer to slides and 32, 38, and 42. 6

7 Checking Accounts are Not Just for Paying Bills More than half of all checking account holders use a transaction account (checking or prepaid) to store savings. The label on an account doesn t mean that it will be used in the expected way. Households may use checking accounts for savings and savings accounts for transactions. J. Murdoch, R. Schneider, et al, "Savings Horizons", US Financial Diaries Issue Brief, June A saving habit is an important aspect of financial health, and the type of account people use to save doesn t matter. Encouraging and facilitating saving is an important component of high-quality financial services. For more detail, refer to slides

8 Financially Struggling Checking Account Holders Use Mobile Banking Regularly More financially struggling checking account holders use mobile banking regularly, compared to their financially healthy peers. Over 75% of financially struggling checking account holders who use mobile banking check their checking account balance weekly. Giving account holders real-time information through a less expensive, more convenient channel is a win-win for the consumer s financial health and the provider s bottom line. For more detail, refer to slides

9 Checking Account Holders Income can be Irregular or Unpredictable 20% of checking account holders do not find it easy to predict their next month s income. 86% of them are struggling financially (37M consumers) 66% of checking account holders have at least one source of irregular income. 49% of them are struggling financially (70M consumers) Financial services providers have an opportunity to help consumers manage income fluctuations so that they take advantage of the income spikes to plan and save for the income dips. For more detail, refer to slides

10 What could your financial institution do to help your checking account holders improve their financial health? Company Logo

11 Make Checking Accounts Easier to Manage Provide real-time and enhanced balance information so the account holder can make informed spending decisions.» Simple s Safe to Spend» PNC s Virtual Wallet Offer account features, like checkless checking, to help account holders avoid spending more than they have.» Bank of America s SafeBalance Account» Citi s Access Account» Guaranty Bank s Relationship Checking» KeyBank s Hassle-Free Checking» Simple» Union Bank s Access Account 11

12 Make Overdraft Policies More Customer-Friendly Process transactions in the order in which they were made so that accountholders are less likely to incur multiple fees or unwittingly overdraw their accounts. Do not process transactions by amount, ordering them from high to low. Set a threshold amount for overdrafts so that small overdrafts do not trigger large fees.» Banks that have adopted this practice include: Bank of the West, Capital One, Chase, Citizens, Fifth Third, Regions, TCF, U.S. Bank, & Wells Fargo Offer an overdraft grace period.» Huntington Bank Provide real-time overdraft notice with options to rectify within a specified time. (Options may include: use funds on deposit, pay with another source such as a linked account or credit card, establish and pay with a line of credit, cancel the payment, or let the transaction proceed and overdraw.) Source: Pew Charitable Trusts Report, Checks and Balances,

13 Facilitate Financially Healthy Behaviors Leverage online and mobile channels to provide smart, real-time financial decision-making assistance.» Moven» Simple Help account holders pay their bills on time, scheduling and executing payments according to a schedule that aligns with liquidity.» Prism Lin» Mint Bills Help account holders manage financial volatility with income smoothing and predicting services.» Even Even turns inconsistent income into a steady salary by saving money from above-average paychecks and boosting low paychecks automatically. 13

14 Facilitate Financially Healthy Behaviors Encourage saving.» Bank of America s Keep the Change» U.S. Bank s Savings Today And Rewards Tomorrow (S.T.A.R.T.)» D2D s prize-linked savings and gamification» Digit checks your spending habits and removes a few dollars from your checking account if you can afford it. Easily withdraw your money any time, quickly and with no fees. With interest rates near zero since 2008, consumers have not had an incentive to use a savings account, and financial services providers have not had interest payments to use as a competitive mechanism this is likely to change in the near future. Knowing that half of the population saves in transaction accounts, financial services providers can differentiate themselves by helping savers grow their savings habit while keeping their money accessible. 14

15 Ask Yourself, Do Your Products Meet Their Needs? The financial health framework and Compass Principles can help you evaluate current products and services and create new ones. What innovative feature could you add to your mobile offering to help consumers spend, save, borrow, or plan more efficiently and effectively? What innovative products and services might help account holders with unpredictable and irregular income streams better manage the volatility and increase their resilience? Consumers use many different techniques and products to save, not just those with a savings label. Can you help them use your products even more conveniently and creatively to achieve their financial goals? 15

16 Financial Health Recap Company Logo

17 Recap: What is Financial Health? Financial health comes about when your daily systems help you build resilience and pursue opportunities. Resilience Opportunity Day-to-Day Management Are you prepared for the unexpected? Are you able to pursue your financial aspirations? Do your financial products support resilience and opportunity? 17

18 Recap: Consumer Financial Health Study Segmentation The Consumer Financial Health Study includes a segmentation analysis that groups individuals based upon patterns of responses to a range of survey questions. The questions correspond with subjective and objective indicators of financial health. The seven consumer segments derived from the segmentation analysis were grouped into three tiers: Healthy, Coping, and Vulnerable. Consumers identified in the analysis as struggling financially are included in the four Coping and Vulnerable segments. Income significantly influences financial health, but so do consumer behaviors, particularly those related to planning ahead and saving. For more on the financial health segmentation, download the whitepaper, Understanding and Improving Consumer Financial Health in America. For more on the four financially struggling segments, download the segment briefs: Financial Health Consumer Segments. 18

19 Recap: Financial Health Segmentation For more on the financial health segmentation, download the whitepaper: Understanding and Improving Consumer Financial Health in America. 19

20 Recap: Healthy Segment Financially Healthy Segments tend to do well across all indicators of financial health. Individuals in these segments are able to manage their day-to-day financial lives; they have a significant financial cushion in case of an emergency, and they are better positioned to seize financial opportunities. They demonstrate the highest rates of checking account, savings account, and credit card ownership of all segments For more on the financial health segmentation, download the whitepaper: Understanding and Improving Consumer Financial Health in America. 20

21 Recap: Coping Segment Financially Coping segments generally exhibit more moderate behaviors and attitudes across the financial health indicators, compared with their Financially Healthy counterparts. These individuals are more likely to struggle with management of their day-to-day financial lives, to have less of a financial cushion for an emergency, and to be less well positioned to take advantage of financial opportunities. Individuals in these segments tend to use a variety of financial products and services traditional, nonbank, and new technology-enabled to manage their financial lives. For more on the financial health segmentation, download the whitepaper: Understanding and Improving Consumer Financial Health in America. For more on the four financially struggling segments, download the segment briefs: Financial Health Consumer Segments. 21

22 Recap: Vulnerable Segment The two Financially Vulnerable segments are doing the least well across financial health indicators. These individuals are more likely to be struggling with their day-to-day financial lives; they have little or no financial cushion in case of an emergency, and they are not prepared to seize financial opportunities for security and mobility. They are the least likely of all segments to own a credit card and the most likely to be unbanked. For more on the financial health segmentation, download the whitepaper: Understanding and Improving Consumer Financial Health in America. For more on the four financially struggling segments, download the segment briefs: Financial Health Consumer Segments. 22

23 A closer look at the data Key Finding 1: Half of checking account holders are struggling financially. Who are the financially struggling checking account holders? Company Logo

24 Key Finding: Half of Checking Account Holders are Struggling Financially More than half of checking account holders are in either the Financially Coping or Vulnerable segments. Learn more about the financially struggling segments here. For more on the financial health segmentation, download the whitepaper: Understanding and Improving Consumer Financial Health in America. 24

25 Checking Account Holders Within the Financial Health Segments Nearly half of consumers without a checking account are members of the Unengaged segment, and 70% of them have never owned a checking account. Learn more about the financially struggling segments here. For more on the financial health segmentation, download the whitepaper: Understanding and Improving Consumer Financial Health in America 25

26 Financial Stress Less than half (43%) of checking account holders say their finances are not the cause of significant stress. That leaves more than half who either agree or are neutral. *Respondents were asked: On a scale of 1 to 5, where 1 is strongly disagree, 3 is neither agree nor disagree, and 5 is strongly agree, how much do you agree or disagree with the following statement: My finances cause me significant stress. 26

27 Paycheck-to-Paycheck Almost a third of checking account holders report always living paycheck to paycheck. Another quarter neither agree or disagree with that statement. *Respondents were asked: On a scale of 1 to 5, where 1 is strongly disagree, 3 is neither agree nor disagree, and 5 is strongly agree, how much do you agree or disagree with the following statement: I always find myself living paycheck to paycheck. 27

28 Short-Term Goals Just under half (46%) of checking account holders lack confidence about achieving short-term savings goals. *Respondents were asked: On a scale of 1 to 5, where 1 is strongly disagree, 3 is neither agree nor disagree, and 5 is strongly agree, how much do you agree or disagree with the following statement: I am confident that I can meet my short-term saving goals. 28

29 Long-Term Goals More than half (52%) of checking account holders lack confidence about meeting their long-term goals for becoming financially secure. *Respondents were asked: On a scale of 1 to 5, where 1 is strongly disagree, 3 is neither agree nor disagree, and 5 is strongly agree, how much do you agree or disagree with the following statement: I am confident that I can meet my long-term goals for becoming financially secure. 29

30 A closer look at the data Key Finding 2: More than half of checking account holders use transaction accounts to save. What is their approach to saving? Company Logo

31 Key Finding: Most Checking Account Holders Save, and More Than Half Save Outside Saving Accounts Checking account holder saving habits: Only about 1 in 5 don t save* More than half of checking account holders use a transaction account (checking and/or prepaid account) to store savings** * Respondents were asked: Which one of the following statements comes closest to describing your saving habits? ** Respondents were asked: Does your household save money in any of the following ways? One answer choice was: Storing savings in a checking or prepaid account. 31

32 Transaction Account Savers Saving is a key component of financial health. More than half of checking account holders in the Healthy and Coping segments use their transaction accounts to save, as do nearly a third of checking account holders in the Vulnerable segments. Checking account holders rate of saving in transaction accounts (checking and/or prepaid account) by financial health tier* More than 85% of checking account holders who use their transaction account(s) to store savings also have a savings account. Read this chart: 58% of Healthy checking account holders use their checking account and/or prepaid account to store savings. *Respondents were asked: Does your household save money in any of the following ways? One answer choice was: Storing savings in a checking or prepaid account. 32

33 Transaction Account Savers Behaviors Regardless of where you save, saving in a transaction account is associated with a number of positive financial health indicators.* *Respondents were asked: How often do you have to juggle which bills get paid when? Does your household plan ahead to make sure you have the money to pay for large irregular expenses? Which one of the following statements comes closest to describing your saving habits? 33

34 Transaction Account Savers Balances Checking account holders who save in transaction accounts have higher non-retirement savings balances than those who do not save in transaction accounts. *Respondents were asked: How much money do you and your household have right now in checking, savings, money market accounts, stocks, and bonds? Please do not include any money in formal retirement funds such as Individual Retirement Accounts (IRA), 401k s, Roth IRA s or company retirement funds. 34

35 A closer look at the data Key Finding 3: Financially struggling checking account holders embrace technology cost-effective channels through which providers can deliver innovative functionality and services. How does their use of technology compare with that of consumers overall? Company Logo

36 Key Finding: Checking Account Holders Embrace Technology Checking account holders use of mobile banking in the past 30 days Checking account holders use of internet banking in the past 30 days 36

37 Mobile and Internet Banking, by Demographics Checking account holders use of both mobile and Internet banking vary by income and age. More affluent account holders and younger account holders use mobile and online channels. 37

38 Mobile and Internet Banking, by Financial Health Compared to peers in the same income quartile, more Coping and Vulnerable checking account holders use mobile banking. More Coping individuals use Internet banking than their Healthy and Vulnerable peers. 38

39 A closer look at the data Key Finding 4: More than 20% of checking account holders say it is not easy to predict their next month s income. These account holders are less likely to be financially healthy. How does their situation compare with that of consumers overall? Company Logo

40 Key Finding 4: Income Predictability Checking account holders for whom predicting next month s income is not easy* *Respondents were asked: On a scale of 1 to 5, where 1 is very easy and 5 is very difficult, how easy is it for you to predict next month s income for your household? 40

41 Predictability of Monthly Income and Financial Health For the majority (79%) of checking account holders, predicting next month s income is easy. However, for more than a fifth of checking account holders it is not easy. These consumers are more likely to struggle financially. 41

42 Predictability of Monthly Income and Financial Health A strong correlation exists between income level and ease of predicting next month s income. The combination of low income and difficulty predicting monthly income may make it even more challenging to adopt and sustain financially healthy behaviors, like planning ahead and saving. 42

43 Predictability of Monthly Income and Resilience Checking account holders who can easily predict their next month s income are better prepared for an unexpected drop in income. *Respondents were asked: How long could your household make ends meet if you faced unemployment, a longer-term illness, job loss, economic downturn, or other emergency that caused a drop in income?. 43

44 Income Irregularity Checking account holders who have at least one irregular income stream Survey respondents were asked to list their household s sources of income and indicate how often that source of income was received: daily, weekly, monthly, or irregularly. Sources of income included: Wages/salaries from your employer(s) Wages/salaries from your spouse s or partner s employer(s) Wages/salaries from other family members employer(s) Self-employment earnings Retirement benefits, including pensions, Social Security, IRAs, 401Ks Interest, dividends, and capital gains from non-retirement savings and assets Tax refunds or earned income tax credit (ETIC) Alimony/child support Rental income or royalties Government cash benefits, such as Social Security disability, unemployment, and Temporary Assistance for Needy Families (TANF) Government in-kind benefits, such as Supplemental Nutrition Assistance Program (SNAP), Special Supplemental Nutrition Program for Women Infants and Children (WIC), and housing vouchers Cash from family and friends Bonuses and commissions 44

45 Income Irregularity vs. Predictability Income irregularity is not the same as unpredictability. Most checking account holders with at least one non-primary irregular income source, as well as more than half of those with a main irregular income source, can easily predict their next month's income. 45

46 Sources of Irregular Income Most checking account holders (85%) have more than one source of household income. 85% of checking account holders receive their main income source at a regular interval. 61% of checking account holders have at least one non-primary income source that is received irregularly. 46

47 Sources of Irregular Income 5% of checking account holders receive their main income source irregularly. The majority (92%) of these households have more than one income source. 47

48 Sources of Irregular Income, by Income Level Checking account holders in the highest income quartile are most likely to have at least one irregular source of income that is not their primary source of income. 48

49 Checking Account Holder Demographics Company Logo

50 Demographics: Today s Checking Account Holder Checking account holders also have a 50

51 Demographics: Notable Facts About Checking Account Holders 51

52 Demographics: Details 52

53 Consumer Financial Health Study The Consumer Financial Health Study survey data was captured from June to August The nationally representative survey sample includes more than 7,000 consumers. Segmentation white paper Segment briefs Credit score whitepaper Survey instrument The Consumer Financial Health Study benefited from financial support from American Express, the Ford Foundation, and the MetLife Foundation. MetLife Foundation is a major sponsor of CFSI s ongoing consumer financial health work. 53

54 Consumer Financial Health Study Methodology CFSI partnered with GfK, a global market and consumer research firm, to field the Consumer Financial Health Study survey. invitations were sent to a random sample of GfK s KnowledgePanel participants from June - August 2014, yielding 7,152 survey respondents. KnowledgePanel is a large national, probability-based panel that provides a representative sample for online research. The sample is comprised of adults (18 and older) residing in the U.S. at all levels of the income spectrum; consumers with annual incomes under $50,000 were over-sampled to provide a robust set of data on consumers in the lower half of the income distribution. The target over-sample was 1,500 consumers with incomes under $50,000, to augment the generally representative pool of respondents. All data contained in this report has been weighted back to the total U.S. population to ensure that it is nationally representative. Standard, baseline incentives were given to respondents for survey completion; in addition to a sweepstakes entry, respondents each received between 1,000 and 1,500 points. Panelists typically receive 1,000 points for every survey session they complete, which is equal to $1. Respondents were offered a $10 incentive to consent to have their credit score range pulled for use in the study. Segmentation white paper Segment briefs Credit score whitepaper Survey instrument For more information about the survey instrument and methodology, download the segmentation white paper: Understanding and Improving Consumer Financial Health in America. 54

55 Want More? The Consumer Financial Health Study data set contains a host of demographic, behavioral, and product information in addition to some information about financial institution relationships. Looking for some targeted information to help you make product or marketing decisions? Reach out to your CFSI Relationship Manager to discuss how we can help. 55

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