Most people muddle through life without really knowing much about their finances. In fact, when it comes to financial literacy, we have a serious problem here in America. According to Forbes, 44% of us don’t have an emergency fund of at least $400, 43% of student loan borrowers are missing payments, credit card debt has surpassed the $1 trillion mark, and fully a third of us haven’t saved a single cent for retirement.
For a consumer finance company, this presents something of an opportunity. If you spend some time to educate your customers, help them better manage their finances, and give them tools to empower them, you not only improve the likelihood that they’ll be loyal to you, but you also improve their creditworthiness and ability to afford your products. And who else is better suited to do this?
Furthermore, you can give new customers a reason to trust you and do business with you. Financial advice, calculators (like debt-to-income-ratio) and how-to stories can help potential customers find your company and its products in a Google search, and allow them to engage in a low-pressure atmosphere that can funnel them to a loan application or other products or services.
Here are just a few examples of these programs in action:
Set quarterly estimated taxes with Track
Tools and additional features that work around products and services offer additional enhancements that increase touch points and engagement. One example comes from Track, an app designed for freelancers that scans your bank account and identifies potential income that requires an estimated quarterly tax payment. But instead of leaving it up to the user to set the appropriate amount of money aside and then file the right forms with the Internal Revenue Service, Track transfers the appropriate payment to a personal account at online bank Evolve, which automatically sends it to the IRS.
Start offering credit education
Experian Partner Solutions offers partners a turnkey approach to providing customers expert advice and industry-leading credit education tools. This includes customized credit education services that can help customers understand, leverage, and improve their credit. It lowers lender risk, as well as the cost to consumers with improved scores, and helps reduce the risk of identity theft. Also included are single or tri-bureau credit reports, scores, and monitoring; solutions that account for consumer rent, telecom, and utility payments; and daily credit limit and utilization alerts that inform consumers about important changes to their accounts.
Create learning opportunities and financial management tools
Some consumer finance companies offer “Loan 101” courses and digital loan management tools, such as how to accelerate a payoff date, request a payment date change, download statements, and access other services. Above all, work to provide feedback and be interactive. For example, provide a credit score, then add advice about how to improve the score, which could include allowing a credit card holder to request a credit line increase that will lower the credit utilization ratio, and boost the card holder’s credit score.
Clearly there’s a need. A study by the FINRA Foundation estimated that nearly two-thirds of Americans couldn’t pass a basic financial literacy test and have difficulty applying financial decision-making skills to real-life situations.
Perhaps this all ties back to our failing education system. According to a recent study by ING Bank, 87% of teens admit they don’t know much about personal finance at all. A quarter of them, according to the study, don’t even know the difference between credit and debit. By helping customers and prospects improve their financial prowess, they will be able to afford more of your products and will also have the incentive and trust to do business with you.
Curious about your own level of financial literacy? Take this quiz and see how you do.