Financial education is lacking on the UK curriculum, but some financial experts say it isn’t the right way to help people tackle their money anyway.
In a roundtable of Financial Technology (FinTech) firms hosted by Mouthy Money in partnership with MRM communications – a group of leaders in the industry gathered to discuss a range of issues around money.
One of the key discussion points was of financial education and whether it really helps people improve their personal finances.
The panel was mixed in its opinions.
“I don’t think we should try and educate anyone. It doesn’t work,” says MoneyHub’s Samantha Seaton.
“I’m reminded of that big study in the States, about 10 years ago, about consumer response to APRs. The group that received all the education simply made poorer decisions faster, with more confidence.”
She goes onto explain that, in her view, educating customers about the specific decisions they make is not something FinTechs should be worrying about. Instead they should focus their energy on good data, good tech and getting the decisions right for the customer.
“If you’re selling financial products, with the technology we have available, surely we can just make sure we get it right. I honestly don’t think education’s the answer. But let’s not also confuse education with transparency. The latter is vital and we need to give people the facts.”
Plum’s Elise Nunn agrees but only to an extent. For her, the advantages that FinTechs bring to the table lie in being data-driven, and understanding the customer in ways incumbents cannot: “It’s about working out what the key pieces of information are, and surfacing them in the right way.
“Online mortgage broker Habito has a true value calculator to show users what’s important – like interest rates and what you’ll pay over time – and what isn’t. That’s better than giving someone a dense piece of literature and hoping they’re academic enough to understand it.”
What’s clear is that technology can put options on the table – and then work out what the impact of the decision will be. This, says PensionBee’s Jonathan Lister Parsons, is what FinTechs do so well, and so differently.
“If you can bring the data together – and get the algorithms to present the options – then the role of education in FinTech is to describe what the real-life implications are on an individual,” he explains.
“Much of this is in the future but the potential is clearly there. And this is another reason why the banks haven’t done well because they don’t analyse the data and apply it to their customers’ lives properly.
“For example, in housing, I’ve never seen a compelling tool that helps you decide whether to rent or buy that’s personalised to your life. You can educate someone all day about interest rates and investments – but the big opportunity for FinTech is to show people what this means in their lives.”
Consumers or customers?
Some FinTech leaders believe education plays not just one role but two: educating consumers more broadly and educating specific customers. The former is something FinTechs will always struggle with, given the scale of the issue and the absence of a comprehensive personal finance component in the UK’s national curriculum.
As Rishi Zaveri from Lendwise puts it: “There’s a structural problem isn’t there? People just don’t know enough about finance, because it’s not a core part of the school curriculum. We’ve got three years’ worth of data that tell us when we work with people to help them understand the issues, we make a big difference.
“If you extrapolate that out you have to conclude there’s a big onus on financial services providers to ensure we educate people about APRs, about loans, about money. Some will get it and some won’t, but it’s something we should be doing because the opportunity cost can be crippling: just look at payday loans.”
Wombat’s Kane Harrison agrees: “We have a learning hub, which explains shares and bonds and so on, and we’ve seen quite a lot of engagement here. The evidence suggests it creates a comfort level for users. And this helps us achieve our goal of creating good habits over the long run.”
But even within the process of working with FinTech users to explain finance, there are different strands of education. Elise Nunn is convinced there’s a big difference between the why and the how.
And, in her firm’s experience, it’s far more effective to educate people on why they should do something – as opposed to how the products work – because that’s the best use of the data. This is crucial to building that bond, generating trust and getting people to come back.
This is where education and engagement intersect. For FinTechs, this is the sweet spot.
“Our industry can do a lot more on taking responsibility to support customers. And this will go a long way to helping trust,” says OpenMoney’s Anthony Morrow, “but actually, I think the issue about education and engagement is more that bank terms and conditions are Byzantine in their complexity – and they’re asking lay people to read them and make a decision with huge implications.”
Rishi Zaveri couldn’t agree more: ““We were determined to break with the norm when it came to the legal language that terms and conditions documents are written in. We sat down with our lawyers and spent a whole day ensuring the document was as brief as possible and in plain English. And we got a fair amount of praise from the FCA for doing it.”
As Samantha Seaton adds: “Let’s not let compliance run this,” because it’s the data – and the way FinTechs can use it – that has the biggest potential difference on peoples’ lives.
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