Wealth is not a good predictor of financial wellness
Some questions can’t be answered by just looking at a household’s savings and debts. For all the data banks and credit unions have about their customers, many can still benefit from using third-party data and analytics to get deeper insights into the factors influencing their customers’ financial decisions.
Households with the same income and wealth can have very different financial wellness profiles. As the financial needs of households change over time, the way they approach economic challenges will vary. The decisions they make will directly impact where they end up on their financial journey.
Several complex factors can influence a household’s portfolio and borrowing decisions. Spending and debt levels, as well as the household’s knowledge and comfort level with financial matters, are just a few examples. Knowing the types of challenges customers face based on their lifecycle and understanding their depth of financial knowledge are critical to serving them effectively.
There are four key factors to consider when trying to get a complete view of your customer’s financial wellness: leverage, spending, planning and financial acumen. While each pillar tells an important story, they are interconnected. By analyzing each of these factors collectively, financial institutions can truly see the differences between consumers who would look the same on paper.
We bring this all together in a new and innovate service called WealthCare, a proprietary data-driven scoring system that identifies the financial wellness of your customers. This allows you to support them on their financial journey in more relevant and meaningful ways. This solution reveals the relationship between leverage, spending, planning and financial acumen, and provides a financial wellness score overall and for each factor. Together these scores provide you with visibility into the customer journey.
Here is how we look at each factor within WealthCare:
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Leverage: The first pillar examines the debt level of a household. The scoring system accounts for a household’s assets and debts and assigns a score that will indicate their ability to shoulder more debt should the need arise.
Spending: The second pillar reflects the relationship between annual expenditure and discretionary income. This measure helps determine if a household is spending within its means.
Planning: The third component helps paint a picture of a household’s ability to adapt to sudden changes in their lives or the economy. This part of the scoring system gauges a household’s risk levels and if they are planning for their future by investing in their RRSP, buying insurance and maintaining a will.
Financial acumen: The final pillar is designed to help financial institutions understand a household’s ability to get the most out of their financial assets and debt. This measure evaluates variables associated with the diversity of investment, willingness to self-invest or seek advice.The way you communicate with clients who are hands-on and plan for the future is very different from how to approach clients who are more laissez-faire with their finances. These types of insights are particularly useful for banks and credit unions that want to strengthen their financial education offerings. By leveraging WealthCare, banks and credit unions can better understand how intangible factors like behaviours and attitudes can shape their customers’ decisions as much as their financial footing.
__________________________________Vito De Filippis is a leader in Environics Analytics’ financial practice, helping institutions make smarter business decisions