The future of financial wellness: banks need to do more to support Gen Z in 2024
When it comes to financial wellness, banks should strive to ensure their offerings are benefitting the consumer, because that is the strategy that is also most likely to benefit them in the long term.
Banks need to be able to identify and deploy tools that proactively promote the financial wellness of customers
As the first generation to be pure digital natives, Gen Z have huge parts of their life influenced and shaped by the data that they themselves create – on social media, through their app use on their smartphones and through their education and leisure activities.
Their lives are influenced by technology in a way that humans have previously not seen, and there are increasing concerns about the potential consequences of this for the health and wellbeing of this generation. Much of the commentary has focused on the social and mental health impacts of hyper-digital lives, but what of the financial implications for this generation?
As the global economy turns increasingly downward and interest rates and inflation amplify both the cost of living and education, Gen Z is facing the bleakest financial outlook of any generation for the last century.
Financial wellness is always a difficult term to engage with because the word ‘wellness’ resists easy definition. People want different things from their life, and finances are no different. Young people may not yet have decided what they want from their money or their life.
However, it would be reasonable to assume that any definition of financial wellness includes giving people genuine power over the decisions that they make about their financial life, as well as helping them avoid unnecessary risks or unsuitable products and giving them the flexibility to accommodate changing priorities as they move through the various stages of their life.
Financial wellness should entail giving consumers the ability to talk about their finances with confidence, both to financial professionals and their families. According to a 2022 survey by GOBankingRates on financial literacy, more than one in four Americans have never talked about money management with their parents, and there is evidence that this is attracting the attention of innovators and fintechs.
According to Omdia’s Neobank Activity Tracker, financial wellness/education is the most popular neobank partnership type in North America, with 16 partnerships being recorded between 2019 and H1 2023.
In addition to this, companies like Amdocs are releasing increasingly sophisticated solutions to drive things like family-first banking. Customers can set age and responsibility-appropriate banking roles for family members while enabling personalisation functionality to enhance the user experience with relevant offers, services and financial education features.
The objective is not simply to give parental control, but to help children learn about money and financial products from an early age, give greater financial transparency to families and to provide parents with the tools to step in quickly if help is required.
While progress is welcome, the overwhelming conclusion at the moment is that the current approach to financial wellness offerings has been piecemeal and insufficient.
Fintech has long touted its potential for global transformational change and to help the millions of people in the world who are unbanked and the billions who have little or no retirement savings. As neobanks gained popularity and started to offer new services, banks became attuned to the need for tools to help individuals manage their finances effectively, but few of the current solutions in the market truly – and proactively – help people address the underlying issues that lead to financial distress. Most tools continue to be self-directed, and it is probable that the people who are most at risk of financial distress are unlikely to use them, with take up generally being quite low.
Banks often counter that they have a duty to deliver a profit on their activities. They are commercial businesses after all, and they have to offer products and services that deliver a financial return.
Findings from Omdia’s Market Landscape: Approaches to Financial Wellness report show that flexible loans are most commonly cited by retail banks as the number-one product development priority for the next 18 months. Given that flexible loans are the most expensive for consumers, particularly for young people, this is a sobering counterpoint to any claim to have financial wellness at the heart of the consumer offer.
The study also found that more than one in three banks are looking at buy now, pay later (BNPL), and our research shows that the evolution of BNPL into “save now, pay later” may be a powerful tool to address financial wellness.
If done well, financial wellness can generate unsurpassable brand loyalty and greatly increase the lifetime value of a customer to a bank. In heavily regulated and saturated markets like banking, this may be the only long-term way of delivering a sustainable profit.
In the context of Gen Z, banks know that this cohort is the most demanding in terms of their service expectation, and they are also the most likely to switch to a different service if they do not get what they want. As such, a strategic approach to financial wellness is not just morally right, it is the smart thing to do from a marketing and business development perspective.
This creates an opportunity for vendors. Banks need to be able to rapidly identify and deploy tools that proactively promote the financial wellness of customers. There are opportunities in terms of doing things like personalising customer journeys, offering budgeting tools and matching products and monitoring for early signs of distress. But there is also a wealth of opportunity in ensuring that the bank is doing all of this to the genuine advantage of customers – for example, checking that the activities of one part of the bank do not conflict with the activities of another, ensuring that where data is used to make recommendations or make a decision, it is used ethically and equitably, or providing a swift and transparent resolution where something has gone wrong.
In summary, when we talk about financial wellness, it is perhaps best to consider that we mean the wellness of both the consumer and the bank. They are not mutually exclusive to each other.
Like most things in life, if you commit to it and do it to the very highest standard possible, it will be more than worthwhile. If your effort is tokenistic and not strategic, it will be more trouble than it is worth.
About the author
Ouliana Smith is a senior research analyst in Omdia’s Enterprise IT Financial Services Technology team and has 10 years’ experience in financial services. Since joining Omdia in 2022, she has focused on digital transformation in retail banking and fraud solutions with a strong interest in alternative payments.
Ouliana started her career as an associate analyst with Datamonitor, now GlobalData, a global market intelligence provider, where she specialised in cards and payments before later moving into wealth management.
Ouliana holds a first-class honours degree in mathematics from Coventry University and an upper-second-class honours degree in art history from the Open University.
