To say that our personal finances are currently facing extreme pressure is perhaps one of the biggest understatements you will read today.
High interest rates are causing intense difficulties for homeowners looking for a manageable mortgage. Indeed, lenders are pulling many deals out of the market amid concern over customers’ ability to meet the skyrocketing payments, leaving them to face a battle to hang on to their homes. Additionally, homeowners and businesses alike are facing ever-increasing energy bills, which are leaving people facing a stark choice of whether to eat or heat this winter.
Add to this general price rises across the board, including for everyday supermarket staples, and you begin to see why a huge proportion of people are concerned about their finances.
However, despite this rocky outlook, it remains essential to stay in control of your finances for the sake of your overall financial wellbeing.
Financial wellbeing is about feeling secure and in control. It’s knowing that you can pay the bills today, can deal with the unexpected, and are on track for a healthy financial future. In short, it makes you feel confident and empowered, even during times of financial pressure.
The question is, how can we keep financial wellbeing on track, even during these difficult times?
Nurturing a savings support network
According to a survey of social trends in Great Britain, nearly half (46%) of adults claim they will not be able to save any money in the upcoming 12 months.
It goes without saying that this has caused serious concern in the UK government, which recognises that they need to offer some encouragement and support. The result is the formation of the UK Strategy for Financial Wellbeing, which is a 10-year framework developed by MaPS with the aim of helping people make the most of their money and pension plans.
The strategy outlines a few key goals, including providing 2mn more children and young people with a proper financial education. Research by MaPS identified 11.1mn working-age adults on low-to-modest incomes who do not save regularly. This prompted the creation of the Nation of Savers initiative, which sets out to encourage more people into the habit of saving regularly by 2030.
Using digital tools to underline the financial wellbeing message
Digital banks have been rising in popularity in recent years. In 2022, roughly 203mn people use digital banking services, and this number is expected to reach 218mn people by 2025.
Digital banking has empowered consumers in a variety of ways. It has made it possible for users to receive wages and send money to loved ones in a secure, cheap, and rapid manner. Consumers can easily open individual bank accounts, giving them freedom to do what they wish with their money.
And crucially, most digital banks provide features that help users keep track of their income and expenses, giving more people access to easy-to-use financial management tools. It is these tools which should be highlighted as an important aid to help people to save – even if the amount being put aside is small. These tools are also an important way of taking control of their finances, to either pay bills or transfer money. These tools include the following:
- Alerts – Many digital banks use push notifications to alert their customers when money is spent or balances become low, giving consumers greater transparency over where their money is going. Consumers can then adjust their habits accordingly.
- Spending trackers and budgeting tools – By providing regular spending reports, consumers can see their spending broken down into concrete categories. Some banks even allow users to set a limit for each category, preventing them from going over budget on certain expenses.
- Automated savings – With automated savings, consumers can set up for a certain amount to be stashed away every month without having to even think about it.
Indeed, financial management tools that were previously only accessible to consumers through a financial planner are now packaged into apps, giving consumers greater control over what they spend and how they save.
Financial services providers should view this digital arsenal as a massive selling point to customers, one that will help customers to feel like they are taking control of their financial wellbeing.
While an obvious point, the fact that people can only save if they have spare cash to set aside after all expenses are paid needs underlining. Current economic uncertainty is preventing many people from doing this.
However, financial services providers – be they one of the digital-only ones, or one of the more traditional providers looking to up the digital ante – should ensure their customers are aware of the existence of these important digital tools. Even if they cannot save any money now, they will be able to use digital tools to keep track of their spending, or to pay bills.
The important thing is that they are taking control of their finances; they are actively managing them on a day-to-day basis and achieving a sense of financial wellbeing. When they can save, they will be aware of these digital channels, and will be much more likely to use them to put some money aside, which is good news for them, and good news for the wider financial services sector too.
With the financial services industry revolutionising at an unprecedented pace, companies who still rely on core banking systems risk losing their competitive edge. Businesses leading the shift recognise that their services must be nimble, changing as the industry and their customers evolve.
Financial service providers need to be able to act quickly, and digital banking systems provide the foundation for this agility to flourish, and to encourage customers to achieve a vital sense of financial wellbeing.
About the author
Jerry Young is the CEO of ieDigital, a portfolio company of Parabellum Investments. Jerry has more than 25 years’ experience in financial services and software. Prior to joining ieDigital, Jerry worked for Fiserv leading their EMEA banking operations, Oracle Corporation responsible for banking and insurance, and he was Managing Director of FICO (Adeptra).