Financial services are an important form of community development. And as the President and CEO of the Center for Financial Services Innovation (CFSI), Jennifer Tescher is working to improve the financial health of all Americans with a specific focus on the underserved. The Build Healthy Places Network’s Barbara Ray sat down with Tescher in Chicago to talk more about the role of financial health in improving family and community well-being.
Barbara Ray: When did you realize that health, broadly defined, was actually a part of your work? Did you have an “aha” moment?
Jennifer Tescher: For us it was a two-step evolution. CSFI started out life thinking about access to financial products and services, and over course of a decade, we realized that the endgame wasn’t just a bank account. It was financial health. And as I started thinking about that idea, I very quickly started to hear about the social determinants of health and people in the physical health arena thinking about upstream challenges to health. I realized there’s a connection between the broader health work and what we do.
What is “financial health” anyway?
We define financial health as having daily financial activities that help you build resilience and seize opportunity, whether that’s buying a house or sending your kids to college, or something more modest like taking a vacation or being able to buy your child a birthday present. Your day-to-day financial life or system is either detracting from those things or adding to them. You want to be building a cushion and be able take advantage of opportunities.
What about the broader impact on community when residents have help with saving and planning for the future? Is there a “trickle up” effect?
Neighborhoods grow healthier when their residents are healthier. That’s true both physically and financially.
Neighborhoods grow healthier when their residents are healthier. That’s true both physically and financially. However, the impact goes both ways. It can be more challenging for consumers to improve their financial health if they live in neighborhoods that lack high-quality institutions and businesses—be they banks, schools, day care facilities, supermarkets, or transit options. Likewise, neighborhoods that have these amenities are better able to support them with a base of residents who can effectively engage.
Does access to financial tools—like banks or debit cards—play a similar role in financial health as access to health care does in health?
When CFSI was born 11 years ago, we were focused on the quantity and quality of financial services as the primary barriers. We believed consumers needed access, and access to better options. Through experience, we have come to understand that access is critical but insufficient. It’s not just about having a bank account. It’s about having the products, tools and behaviors needed to improve and maintain financial health, which comes about when your daily systems help you build resilience and seize opportunities. I believe this is very similar to physical health. Access to doctors and hospitals and medications are critical, but they are not the only factors that impact health.
So are Americans generally financially healthy? You just conducted a large, nationally representative survey on this topic. What did it show?
We have come to understand that access is critical but insufficient.
Based on our work, 57%of Americans are financially unhealthy. “Unhealthy” includes a range of things—one’s day-to-day financial situation (like being able to pay bills on time), resilience (having savings or insurance), and opportunity (which relates to credit scores, savings, things like that).
We also found that, while income matters, so do behaviors like saving and planning ahead. But it wasn’t just planning ahead period, it was planning ahead for large, irregular expenses. Those who did that were 10 times more likely to be healthy, holding all else constant. Those who said they have a planned savings habit were 4 times more likely to be healthy.
What does this tell you in the end?
It tells me that if financial services providers think of their job as being less about banking and more about helping people save and plan ahead, then they’re going to ultimately make more money and have more loyal customers. And they’ll be making money not in spite of their customers, but because of their customers’ success.
People’s incomes are so much more volatile today. I read several years ago in High Wire, by Peter Gosselin, that about 10 percent of Americans experience a 50 percent drop in their income in a year, which is nearly double the rate it was 30 years ago.
What we’re seeing from the US Financial Diaries project is that, on average, people are experiencing spikes and dips in their income five times a year–dips that are up or down by 25%, on average. So not a little bump. It’s dramatic. Ninety-seven percent of the families we followed had at least one of those dips a year. So it’s a pretty widespread challenge.
That volatility adds a lot of stress I would imagine, which is never healthy.
It’s also about scarcity. When people have scarce resources, they tend to tunnel and focus on the now and the immediate challenge, which helps them get through, but they are then more challenged to get ahead in the long run.
So it seems like a cash flow issue and less an issue of access to credit?
For a long time the thought was assets really matter, and they absolutely do, for sure. And then there was this focus on debt. Now we’re adding a third lens. None of these lenses are in and of themselves the only lens, but the cash flow lens from a day-to-day perspective is what’s really going to help you avoid too much debt and be able to build assets. It’s really resilience and opportunity again.
What’s next?
I believe everyone can save but finding ways to embed it, to not make it a formal financial planning activity, is going to be critical to success. How do we embed these kinds of prompts into people’s daily lives instead of sitting people in a classroom or asking people to create a budget? We’ve launched the Financial Solutions Lab to tackle some of these questions.
Our ultimate goal is to get financial service providers to measure their own success in helping their customers to become more financially healthy and to see that as the business they’re in.
Homepage photo/Valentina Powers