Consumer Financial Services Webinar Series

Webinar #1:

Current Trends in Consumer Behavior and Financial Products

January 15, 2015 at 1:00 – 2:00 PM

Agenda •  NEXT Awards and Consumer Financial Services

•  CFSI and The Financial Health Framework

•  An Overview of the Underserved Marketplace •  Trends in Consumer Finance

–  Transact –  Save –  Borrow –  Plan

•  Audience Q&A

Presenters

•  Beth Lipson, EVP, Strategic Initiatives, OFN

•  Tanya Ladha, Manager, Advisory Services, Center for Financial Services Innovation

3  

2015 NEXT Awards •  Year-long Awards program

•  Awarded $66 million since 2007

–  more than $8 million per year

•  2012-2016 theme of expanding coverage –  2015 subtheme: consumer financial services

•  Goals

–  Take CDFIs to the next level of growth and impact –  Increase visibility of CDFIs and the work they do

•  Combines financial support, visibility, learning, and

sharing

2015 NEXT Awards •  Key NEXT Awards dates:

–  Application open: 1/27/15

–  Info session #1: 2/05/15, 1:00-2:00 PM ET

–  Info session #2: 2/11/15, 1:00-2:00 PM ET

•  For credit unions

–  Application close: 3/11/15

•  Webinar series to set the context for and support the theme of consumer financial services –  Upcoming webinar (#2): Developing, Innovating, and Scaling

Consumer Financial Products and Services, February 18th, 1:00 – 2:15 PM

Trends in Consumer Financial Services

A presentation for The Opportunity Finance Network NEXT Awards Webinar Series

Presented by: Tanya Ladha January 15, 2015

About  CFSI

Connect    

We  foster  dialogue  and  collabora8on  through  CFSI  events  and  networking  

opportuni8es.  

Inform    

We  provide  deep  consumer  insights  

and  industry  research.  

The  Center  for  Financial  Services  Innova8on  is  the  authority  on  consumer  financial  health,  leading  a  network  of  financial  services  innovators  commiDed  

to  building  beDer  consumer  products  and  prac8ces.  

Innovate    

We  seed  and  test  promising  new  

ideas.  

 

Advise    

We  offer  consul8ng  services  to  both  for-­‐profit  and  nonprofit  providers.  

Using  our  Compass  Principles  as  a  framework  for  quality,  we:  

FINANCIAL HEALTH

9  

Defining  Financial  Health  

FINANCIAL  HEALTH  MEANS…  

increases  the  likelihood  of  LONG-­‐TERM  

financial  resilience  and  opportunity.  

an  individual’s  DAY-­‐TO-­‐DAY  

financial  system  func8ons  well…  

10  

Defining  Financial  Health  

•  Financial  health  is  a   for  mental  and  physical  health,  family  stability,  educa8onal  aDainment,  and  other  achievements  of  both  children  and  adults.    

•  It  is  deeply  connected  to   ,  whether  for    one  individual  today  or  inter-­‐genera8onally  over  8me.  

•  At  the  macro  level,  it  has  a   and      economies  locally,  regionally,  and  na8onally.  

For  people,  their  communiOes,  and  our  country…  

•  Individuals  with  stable  or  increasing  financial  health  can  drive  ,  increase  loyalty,  and  provide  new  

opportuni8es  for  engagement.  

For  financial  service  providers…  

THE UNDERSERVED MARKETPLACE

Market size, key trends and emerging innovations

The  Underserved  Marketplace:  $103  Billion  

Source:  CFSI,  2014  

Unbanked    8%  

Underbanked    20%  

Banked    72%  

Approximately  28%  of  US  households  are  financially  underserved.  

 

The  Underserved  Popula8on:    Key  Demographics  

Source:  FDIC  2011  Household  Survey  

Underserved:  Households  by  Ethnicity  

55%  Black  48%  Hispanic  41%  American  Indians  20%  White  19%  Asian  

28%  

12%  

5%  

2%  

0.50%  

22%  

26%  

23%  

19%  

14%  

Less  than  $15,000  

$15,000-­‐$30,000  

$30,000-­‐$50,000  

$50,000-­‐$75,000  

At  least  $75,000  

Underserved  Households  by  Income  

Underbanked   Unbanked  

Source:  FDIC  2011  Household  Survey  

Framing  the  Problem  

StarOng  with  the  “What”:    Exploring  areas  of  household’s  financial  lives  to  

iden8fy  challenges  

Save  Transact  

Borrow      

Plan    

TRANSACT How households conduct day-to-day financial transactions

Why  Are  Consumers  Not  at  a  Bank?    

Not  enough  money  to  make  an  account  useful    

“I  wish  I  could  have  money  to  handle.  I  don’t  have  any.  What  I’m  learning  about  myself  is  that  I’m  really  trying  to  survive.”  

Accounts  are  too  costly  

“…  instead  of  bouncing  the  one  big  check  they  bounced  a  zillion  other  liJle  ones.  .  .  .  Then  they  charged,  it  was  $30  for  each  of  that,  so  next  thing  I  know  it’s  like  negaOve  $600.  Forget  it!  I  mean,  you  guys  are  killing  me  here!”      Lack  of  trust  in  banks  

“I  don’t  like  puSng  my  money  in  a  bank.    I  don’t  trust  anybody  with  my  money  but  me.”  

Source:  CFSI  Underbanked  Consumer  Study,  2008  

Underserved  Consumer  Transac8ons  

18%  

31%  

13%  

0%  

1%  

18%  

11%  

2%  

61%  

18%  

1%  

0%  

0%  

5%  

9%  

2%  

Bank  or  Credit  Union  

Supermarket  or  Grocery  Store  

Check  Casher  or  Currency  Outlet  

Payday  lender  

Pawn  shop  

Convenience/Drug  Store/Liquor  Store  

Discount  Store/  Super  Center  

Department  Store  

Preferred  Outlet  for  Financial  TransacOons  

Underbanked   Unbanked  

Source:  CFSI  Underbanked  Consumer  Study,  2008  

SAVE

How households build savings, particularly for short-term security

Households  Savings:  Purpose  

Having  the  ability  to  cope  with  financial  shocks  is  a  primary  moOvator  for  saving,  however  1  of  2  Americans  are  unable  to  come  up  with  $2,000  in  30  days.  

78%  

70%  

53%   51%   49%   48%  

40%  

34%  

16%  

To  feel  financially  secure  

Emergency  or  medical  costs  

Special  events   Unan8cipated  job  loss  

Home  improvements  

Re8rement   Educa8on  or  training  

Furniture  of  appliances  

Invest  in  business  

Reasons  for  Savings  among  LMI  Households  

Source:  Barr,  2009  ;  Doorways  to  Dreams  Fund  2012;  FINRA,  NaOonal  Financial  Capability  Study    

Household  Savings:  Desire  

0%  

5%  

10%  

15%  

20%  

25%  

30%  

35%  

None   Less  than  $25   $25-­‐$50   $51-­‐$100   $101-­‐$250   More  than  $250  

How  much  do  households  think  they  can  save  each  month  for  emergencies?  

62%  of  households  with  no  emergency  savings  indicated  they  would  be  able  to  save  at  least  $25  a  month  for  emergency  savings.    

Source:  New  America  FoundaOon,  2011  ;  Doorways  to  Dreams  Fund  2012  

Households  can  improve  their  ability  to  save  with  the  right  products  and  services.  

BORROW

How households use credit to manage short-term cash shortages

Who  Are  Small  Dollar  Credit  Consumers?  

SDC$$$$$$$$Consumers

Non-SDC$$$$$$$$$$$$$$$$$Consumers

Overall$Population(1)

Highest$Level$of$Education$Achieved$$$$$$$Less$than$HS/HS$Diploma 59% 45% 54%

$$$$$$$Some$College 31% 32% 28%

$$$$$$$Bachelor's$Degree$or$Higher$ 10% 23% 18%

Region$$$$$$$Northeast 8% 18% 17%

$$$$$$$Midwest 21% 24% 22%

$$$$$$$South 50% 35% 39%

$$$$$$$West 21% 24% 22%

Household$Size$(Mean) 3.2 2.8 NA

Race/Ethnicity$$$$$$$White,$NonKHispanic 46% 64% 63%

$$$$$$$AfricanKAmerican,$NonKHispanic 29% 11% 14%

$$$$$$$Hispanic 20% 18% 17%

$$$$$$$Other,$NonKHispanic 6% 7% 6%

Note:$results$shown$here$represent$consumers$from$households$with$no$more$than$$75,000$in$annual$income

(1)$Statistics$from$March$2011$Current$Population$Survey$(conducted$by$the$Bureau$of$Census$for$the$Bureau$of$Labor$Statistics)

Es;mate:  15  million  

Source:  CFSI,  2012  

Why  Was  There  a  Funds  Shortage?  

0%   5%   10%   15%   20%   25%   30%   35%   40%  

I  planned  to  make  a  major  purchase  that  exceeded  my  monthly  income  or  savings  

(e.g.,  car  or  truck,  major  appliance)  

I  spent  most  of  my  money  that  month  paying  off  a  previous  loan  

 I  had  an  unexpected  drop  in  my  income  (e.g.,  lost  job,  hours  cut,  benefits  cut)  

My  general  living  expenses  are  consistently  more  than  my  income  

 I  had  an  unexpected  expense  (e.g.,  medical  emergency,  car  broke  down)  

I  had  a  bill  or  payment  due  before  my  paycheck  arrived  

Very  Short-­‐Term  

Short-­‐Term  

All  SDC  Users  

Source:  CFSI,  2012  

Other  Resources  to  Meet  Borrowing  Needs  

Had  No  Savings,  66%  

Had  Savings,  but  Chose  Not  to  Use  

Any,    7%  

Used  Some,  but  Not  All  Savings,    12%  

Used  all  Savings,  but  S8ll  Short,  

16%  

Credit  Card   Overdra]   Loans  from  Friends    and  Family  

I  don't  qualify    (32%)  

Too  expensive    (25%)  

I  did  -­‐  in  addi8on  to    SDC  (21%)  

I  maxed  out  or  can  no  longer  use  this  product  (19%)  

Too  inconvenient    (17%)  

Too  inconvenient    (20%)  

Too  expensive  (16%)   I  don't  qualify  (15%)   Not  offered  near  me  (17%)  

Why  not  use  SDC  alternaOves?  Usage  of  savings  to  cover  needs  

Source:  CFSI,  2012  

PLAN How households plan to manage their day-to-day finances

Types  of  Budge8ng    

Mentally  40%  

On  Paper/  Computer  

37%  

Not  at  all  23%  

BudgeOng  methods  among  Financial  Diaries  parOcipants    

“Everyone  has  a  system”    Financial  planning  for  both  short-­‐term  needs  and  long-­‐term  goals  that  require  trade-­‐offs  

 

Source:  CFSI  Financial  Diaries,  2014  PRELIMINARY  DATA  -­‐  DO  NOT  CITE  

Income  Vola8lity  

0%  

10%  

20%  

30%  

40%  

50%  

60%  

Very  Steady   Somewhat  Steady   Not  Very  Steady   Not  Steady  at  All  

23%  

For  each  income  source,  how  steady  is  the  total  weekly  number  of  hours?    

PRELIMINARY  DATA  -­‐  DO  NOT  CITE   Source:  CFSI  Financial  Diaries,  2014  

Almost  a  quarter  of  households  have  unsteady  weekly  income  

INNOVATIONS AND TAKE-AWAYS

Behavioral-­‐Design  Innova8ons  

Changing  Behaviors  From  micro-­‐investments  to  lending  to  account  u8liza8on,  a  growing  number  of  firms  are  shioing  focus  from  educa8on  to  interac8vity  and  incen8ve-­‐based  schemes  that  are  economically  jus8fiable  within  a  margin  constrained  business.    

Financial  Capability  Ins8tute  

www.financial-­‐capability.org    

Key  Takeaways  

•  Financial health is critical for all Americans, particularly for those who are struggling.

•  Transacting, saving, planning and borrowing pose

unique challenges for the financially underserved.

•  Financial service providers (banks and non-banks) can address these challenges using innovative, consumer-centric methods and channels.

Q&A

Submit your questions through the “Question” box on the GoToWebinar control panel