Consumers are facing the perfect storm of financial pressure, including rising inflation, layoffs, and high interest rates amid a financial downturn. To add to the pressure, many consumers—of all generations—struggle with gaps in financial education that can have serious and long-lasting consequences. Financial institutions have a unique role to play in building financial capability and strengthening community resilience in times of need to create far-reaching impact.
In a recent panel discussion, impact leaders talked about how financial institutions can support their communities with financial education during a financial downturn. Jim Marous, Co-Publisher, The Financial Brand, led the discussion with panelists:
- Lauren Bernstein, Head of Customer Experience, EVERFI
- Paola Garcia Abbo, Head of Impact, OneMain Financial
In this article, we share five key takeaways from the discussion. With OneMain Financial’s programs as an example, we highlight how financial institutions can support consumers and communities during times of recession—and how advancing financial education and financial wellness is a win-win for all.
1. Provide education and empathy during a stressful time of financial uncertainty
Consumers are facing tremendous economic and financial uncertainty. Economic signs are pointing to the approach of a financial downturn. According to The Wall Street Journal, more than two-thirds of economists at 23 major financial institutions are predicting a recession in 2023 or 2024. Economists are also watching GDP growth: while fourth-quarter growth was solid, there are signals, including slower growth, that indicate a recession is coming.
This period of uncertainty is a stressor for consumers. According to research, nearly three-quarters of Americans rank finances as their #1 stressor in life—more than politics, work, and family. And this stress cuts across generations: the same data shows that 54% of teenagers are worried about financing their futures, including the costs of higher education.
By providing financial education, financial institutions can support consumers and their communities through periods like the present. “We are in a unique position to help ease some of the financial stresses that come with everyday life,” said Paola Garcia Abbo of OneMain Financial. “Financial institutions need to come from a place of empathy to support and build trust with consumers. We can provide answers that fill critical financial education gaps.”
2. Counter the consequences of low financial literacy
Low financial literacy has far-reaching and long-term consequences—for individuals, families, and communities. Research has shown that consumers with low financial literacy are:
- 3X more likely to be debt constrained
- 4X more likely to spend 10 or more hours per week thinking about financial issues
- 5X more likely to lack emergency savings sufficient to cover one month of living expenses
At any time, but especially during an economic downturn, building enhanced financial literacy is key to supporting consumers by improving their confidence and financial know-how. Access to financial education can help consumers make informed decisions regarding their finances. Consumers with higher financial literacy are less likely to carry a credit card balance, may increase their stock investment and retirement plan participation, and are more likely to build non-retirement savings.
3. Start early to build lifelong financial wellness
The best financial education provides consumers early on with foundational knowledge and skills for a lifetime of financial wellness. This ideal, though, is far from the reality. Research reveals that most young people are not learning about personal finance at home: just 28% of parents talk about money with their children. Another study noted that 69% of parents have some reluctance about discussing finances with their kids.
Yet, complexity is on the rise: the number of financial decisions consumers must make is increasing, along with the variety and types of financial products. It’s no wonder that many young people struggle to understand concepts from credit scores to mortgages, investments, and much more. Most high school students do not have access to personal finance education in school, and they are not discussing it at home—which leaves large gaps in financial literacy as they head into adulthood.
Financial education can help young consumers build healthy financial habits early, helping them avoid early stumbles that can damage their credit. “It’s never too early to make this impact – to learn good financial habits and behaviors when we are young,” said Jim Marous of The Financial Brand. Financial education can also benefit consumers at any stage, from making large purchases like a car or first home, to planning for the costs of sending a child to college and ensuring sufficient savings for retirement.
4. Prioritize addressing key gaps
When deciding to offer financial education, it can be daunting to determine where to start. Financial institutions can start by meeting consumers where they are. As Paola Garcia Abbo of OneMain Financial noted, “So many people do not understand their credit.” She pointed to survey findings including:
- 68% of high school students report they do not understand credit scores
- Four in 10 Americans “have no idea” how credit scores are determined
- Just one in three Americans had checked their credit score in the past year
Providing specific education to close the credit education gap benefits consumers, financial institutions, and communities—and not just consumers already struggling with their credit, but everyone.
5. Help consumers optimize their financial journey
Today, consumers have more options than ever for managing their money. They can choose from big banks with brand names, online-only banking, credit unions, and much more. With so much choice, loyalty is in decline as consumers of all ages are rethinking their banking relationships. In fact, according to survey data, one in five consumers is seriously considering switching their bank. They are swayed by access to enhanced banking products and services, lower fees, and higher savings rates.
But there is more: consumers are also having trouble accessing the full spectrum of what they need to optimize their finances and financial journey. This includes education to build financial literacy and financial wellness. As Jim Marous of The Financial Brand put it, “Now more than ever, financial institutions are being asked by consumers and the government to play a bigger role in financial wellness.”
Making the case for financial education
There is no dancing around this: financial institutions are businesses, which means there is always the bottom line to consider. Financial education, though, helps institutions create a double bottom line: doing well by doing good.
This is because financial education that builds financial literacy and wellness for individuals and communities results in benefits including:
- Growing the bottom line
- Creating stronger, more informed consumers of products and services
- Addressing the approachability gap, or how to connect with new or untapped consumers
- Educating individuals, and providing information that benefits all generations
- Building community health through more financially educated and stable consumers
- Enhancing marketing strategies and building a stronger brand for the financial institution
“Ultimately, financial education is about investing in improving financial capabilities and communities,” Lauren Bernstein of EVERFI explained. “Institutions can and should embrace the double bottom line and learn to tell a story of success around efficacy and impact.”
Credit Worthy by OneMain Financial
To build financial literacy, Credit Worthy by OneMain Financial gives high school students access to digital-first, real-world financial education. Credit Worthy includes four key components:
- Financial education provided free to schools nationwide with courses on credit education including Importance of Building Credit, When to Use Loans, Evaluating Credit Offers, and Understanding Your Rights and Responsibilities
- Ambassador and volunteer programs
- Family resource center with publicly available resources to share financial education with students’ families
- Scholarship program
As part of the program, OneMain Financial partnered with EVERFI to create educational content that teaches the importance of credit through real-world simulation. To date, Credit Worthy has had a significant nationwide impact, with a presence in 1,700 schools serving 76,000 students in the 2021-2022 school year, and funding $300,000 in scholarships to students in the program.
Credit Worthy delivers the key takeaways the panel of impact leaders highlighted:
- Provide education during uncertainty
- Counter the consequences of low financial literacy
- Start financial literacy education early
- Close key knowledge gaps
- Deliver comprehensive information that strengthens consumers
To learn more about financial literacy to support consumers during a financial downturn: