If you look at the FinTech ecosystem today, you’ll notice an overwhelming focus on a single target audience: the Millennials. I recall an interesting discussion with one particular entrepreneur last year that ended as follows:
“What do you think of the non-millennial market?”
“What about it? They don’t use tech.” And the entrepreneur went on to conclude: “We are a millennial company building solutions for the millennials.”
I wonder what they plan to do when their customers get older, start a family, and buy a house. Successful businesses learn to grow with their clients and anticipate their evolving needs. And this applies to all sectors and operations across different demographics. Retail banking branch is a good example. Although we may still have over 80k branches in the US today, the roles that they play have and will continue to evolve. The Financial Brand offers some examples and inspirations here: https://thefinancialbrand.com/64401/bank-credit-union-branch-designs-spring-2017/
50-plus are Tech Pioneers
Speaking of millennials, in one of the tech conferences I attended not long ago, a founder (in his mid-20s) asked me: “Who is Steve Case?”
Well, let’s see. There are a few ways I could respond:
- The well-known and accomplished entrepreneur behind AOL?
- The visionary who made it easy for the general public in America to access and exchange information on the Internet?
- The chairman of Case Foundation?
I went with the first explanation. He said: “Oh yeah. I’ve heard of AOL.” As it turned out, he was not alone. Since then, I have run into multiple younger founders who had no idea who Steve Case was. (Fun fact: There are still around 2 million AOL dial up accounts today. Raise your hand if you remember the CDs we used to get.)
A few years before AOL began introducing its own email addresses, British scientist Tim Berners-Lee created the World Wide Web at CERN. He received the 2016 Turing Award “for inventing the World Wide Web, the first web browser, and the fundamental protocols and algorithms allowing the Web to scale”.
Without innovators such as Tim and Steve, both born in the 1950s, the way we communicated and shared information across the geographic divide today would have been drastically different. Can you imagine a world without Internet, without the ability to access information instantaneously, whenever we want and wherever we are? Remember the sound of the dial up modem? What about the infamous “You’ve Got Mail” phrase when AOL became popular in the mid-90s and provided access to the Internet for the masses?
I read an article on Reuters about how the banking industry is relying on COBOL developers to come out of retirement and help keep the machine running. Apparently, we still have about $3 trillion transactions per day running on infrastructure that relies on COBOL. Go figure.
The point I am trying to make is, 50-plus is a generation of digital pioneers who birthed the mobile-first era that many of us have taken for granted. Question is, what are we doing for them in return?
50-plus are facing unprecedented financial complexity
In mid-May, the Federal Reserve Bank of New York reported that the consumer debt in the US reached a new peak at $12.7 trillion in the first quarter of 2017, with student loans accounting for 10.6% of that total.
Reports from other institutions were equally grim.
- 76% of Americans are concerned about economic conditions affecting their ability to achieve a secure retirement; 88% agree that the nation faces a retirement crisis, according to the latest report from NIRS (National Institute on Retirement Security).
- The median 401(k) balance was $26,405, according to Vanguard’s annual “How America Saves” report.
- Only 39% of adult Americans have 401(k) or other types of defined contribution plans, with combined employee/ employer contributions averaging around $5,600 per year. 22% of those eligible for plans do not contribute to them at all, per latest research conducted by Merrill Lynch and AgeWave.
- Meanwhile, nearly half of all working-age families have no retirement account savings at all, per Economic Policy Institute (EPI).
This is just the tip of the iceberg. The sandwich generation, i.e. those with aging parents and supporting/raising a child are getting pulled in all directions. According to Pew Research Center, 47% of adults in their 40s and 50s have a parent aged 65 or older, and are either raising a young child or financially supporting a grown child. About 15% provides financial support to both the parent and child. An average unpaid family caregiver spends an average of $6,954 per year, nearly 20% of their income, on out-of-pocket costs related to caregiving, according to an AARP study.
And things do not look that much better across the pond either. As cited in the Guardian series, “The New Retirement” by Amelia Hill: “1 in 5 people aged 50-64 in the UK are caregivers to an older family member”. As of this year, there are more old people in need of care than there are adult children able to provide it.
According to Michael Drexler, the Head of Financial and Infrastructure Systems at the World Economic Forum (WEF), the anticipated increase in longevity and an aging population is the financial equivalent of climate change. All of the world’s six biggest pension saving systems are under strain; people will need to work longer, save more, and make smarter choices, with support from both private and public sectors.
To make things harder, talking about finances seems to be a social taboo. More often than not by the time the conversation happens, the family is often at a crisis point triggered by illness or death.
Where the financial services industry can help
In the US, most defined benefit plans have been replaced with defined contribution accounts such as 401(k). A large number of people do not have access to or do not participate in retirement plans offered at their workplace. In addition, they lack short-term savings to provide coverage for financial shocks and healthcare costs: Nearly half of Americans (47%) do not even have $400 to pay for an emergency. That figure “drops” to 46% for the 50-plus. Similarly, nearly a third of middle-class families in the UK would struggle to pay an unexpected £500 bill.
This is not an easy problem to tackle. It is, however, encouraging to see more FinTech startups paying attention to such challenges and actively looking at ways to improve financial resilience and promote financial inclusion.
Below are a few ideas to consider.
Provide an integrated solution around life events, not a series of standalone products
Many consumers nowadays leverage multiple channels when they research and consume services. They may start the journey with mobile device and complete the process online; or vice versa. However, if you look at the account opening experience today, very few allow end-to-end completion through a single (digital) channel. Worse, different product types may have different experiences and consumers are expected to pick and choose different products though different interaction points and channels.
Financial institutions should carefully study the user’s needs around life events (such as death of spouse or divorce) and structure an integrated solution that can service the customer through a single interaction point. “Do-it-yourself” financial planning needs to be more intuitive and relatable. USAA is an excellent example.
In addition, women are generally more vulnerable than men since they tend to live longer and are more likely to outlive their savings. We need to equip them with financial know-how and more personalized investment options that suit their goals and lifespan.
Offer financial management solutions for the family
When appropriate, leverage and foster opportunities to involve other trusted parties (such as adult children). According to AARP, 45% of 50-plus consumers have unofficially authorized a partner or family member to access depository and investment accounts by sharing login credentials. A more secure and thoughtful approach is needed to enable family caregivers to perform financial tasks for their loved ones and to safeguard against exploitation.
Look for creative ways to help pool resources amongst siblings to help out with parents’ financial needs. Consider view-only access and other monitoring tools to detect fraud. It baffles me why we do not more financial institutions that offer financial caregiving solutions, especially since multigenerational households seem to be making a comeback.
Empower consumers to establish healthy lifelong financial habits
Provide consumers with a comprehensive picture of their financial health with actionable insights (beyond pie charts). Help them forecast and plan for expenses such as long term care costs. Leverage behavioral economics principles to help them set goals, save automatically, and minimize impulsive decisions. Gamification can go a long way to motivate people.
And while technology is important, one must not lose sight of the human factor. Financial services providers should consider promoting digital tools where consumers can easily initiate interactions (such as click to call) with their advisors.
Protect consumers from fraud and financial exploitation
The average financial exploitation victim loses $120,000, which is almost the same amount the average 50-plus household has in retirement savings. Banks also lose more than $1 billion per year in deposits from financial exploitation. Older adults, in particular, are more vulnerable due to increased likelihood of cognitive decline with longevity.
Machine learning and artificial intelligence hold great promise in helping financial institutions detect changes in patterns that can be flagged for review. EverSafe and Guide Change are good examples of startups helping to protect older adults from scams and financial exploitation.
Help consumers manage their financial lives holistically and make smart decisions
Seven million Americans aged 50 and older owed about $205 billion in federal student debt last year. About 1 in 3 were in default. We need better solutions to help families manage or pay down their debt, and accumulate liquid assets to deal with income volatility and unexpected expenses.
Majority of Americans believe the average retiree does not know enough about managing investments to be able to make their retirement savings last. We need tailored solutions to help older adults manage their assets, liabilities, and drawdown. With longevity, their nests will need to last longer. And there is really no easy way to figure out what you own, what you owe, and what your benefits are, unless you are an Excel spreadsheet wizard.
So what are you waiting for?
People in the industry often talk about the $30 trillion great wealth transfer. “Forward-thinking” institutions are preoccupied with ways to target the millennial. However, as I often joke, if we do not take care of the people who have the assets (and the needs) right now, we would not need to worry about the transfer since there would not be much left.
Let’s bring our collective minds together and think through how to leverage technology to make a positive impact in consumers’ financial lives. Together, it can be done.
“Never interrupt someone doing what you said couldn’t be done.” Amelia Earhart, American aviation pioneer and the first female aviator to fly solo across the Atlantic Ocean.
In summary, a mess.
— Theo (@psb_dc) June 9, 2017