There is amounting evidence that long-lasting and profitable bank customer relationships are built through strengthening customers’ engagement. According to a recent Gallup report, engaged customers bring 37% more annual revenue compared to disengaged customers​.

High engagement with a product and/or brand means feeling a psychological and emotional connection with it. It is a feeling of identification, trust and belief that the company genuinely “is on your side”.

This is an area where the bank industry overall has a lot of room for improvement since trust is generally low. Only 32% of Americans report feeling confident in banks​ and only 21% of Europeans feel that their bank wants what is best for them​. Thus, while it is important for banks to consider customer engagement it is perhaps even more important to keep in mind the direction of this engagement. To increase trust, high engagement must lead to increased financial wellbeing for the customers. Pushing for engagement without this focus runs the risk of damaging customer-relations and for the consumer trust to plummet even more.

To achieve this, the discussion on engagement needs to expand from focusing only on engagement with certain tools or product features, to also include how customers show engagement with their money. This means the degree of engagement that is sustained outside of the product. How a product influences the financial decisions made, habits built and attitudes changed, since this is ultimately what can influence the financial wellbeing of customers. ​

Financial wellbeing is found at the intersection of mental and financial health. Compared to financial health, financial wellbeing goes beyond just looking at the numbers on a person’s bank account. It also takes into account how the financial situation influences the quality of life for a person. Thus, financial wellbeing includes both subjective and objective aspects of finances. One definition provided by the US Consumer Financial Protection Bureau​ summarises that having financial wellbeing means “having control over day-to-day finances, having the capacity to absorb financial shock, being on track to meet financial goals and having the financial freedom to make the choices that allows for enjoyment of life”. ​

The link between personal finances and mental health is well established. People who are suffering from mental health problems are more than 3.5 times more likely to be in troubled debt​. Financial and mental health problems can form a negative spiral where poor mental health leads to worsening of personal finances e.g. by having negative impact on educational and professional opportunities, and poor finances contributes to worsening of mental health by e.g. leading to high levels of stress and anxiety. Indeed, personal finances is the number one source of stress for young adults across nations, causing more stress than worries related to health, violence and terrorism​. High levels of stress are linked to poorer cognitive functions and as a result the capacity to make good financial decisions​​. Importantly, this effect of stress holds true even after controlling for a persons’ income level and credit score​. It is therefore in the interest of financial actors to not only be aware of these stress levels but to also make it their mission to help reduce these.​

Feeling supported by one’s bank matters. Customers who report that their bank understands and supports them towards their goals also report higher financial wellbeing. Data from Dreams’ internal research show that this also means better financial behaviour. Amongst our customers we find that better financial wellbeing relates to higher savings amounts, even after controlling for the effect of income. More importantly, we see direct evidence that we can influence the financial wellbeing of our customers. Two months of applying the concepts outlined above using significantly improves financial wellbeing amongst our customers. These improvements have long-term impact. After two years of using Dreams, customers who initially improved their financial wellbeing, saved on average 31% more than those whose financial wellbeing remained unaffected. This provides evidence that supporting financial wellbeing can have real monetary benefits for both bank customers and banks.​

The subjectivity of financial wellbeing highlights the importance of adapting financial products and support to customers’ individual needs and desires. It is not possible to judge financial wellbeing by looking at a person’s income level. Indeed, in our own data at Dreams we see that 34% of customers reporting poor financial wellbeing have a salary above the national average. Rather than income, research shows​ that the level of savings and ability to absorb a financial shock are the strongest predictors of financial wellbeing.

This observation seems to have gone under the radar for many banks as Gallup reports that when it comes to supporting financial wellbeing, banks are struggling the most amongst high income customers earning at least $200,000/year. This means failing to support a profitable customer segment and missing out on revenue as a result. ​

The importance of improving financial wellbeing is becoming evident for more and more banks and numerous technological innovations have been developed to help this cause. But while the bank industry has invested largely in the development of new technology one crucial component is far too often forgotten. This is the component of the human beings, and the actual behaviours and emotions that are the very foundation of financial wellbeing. When building our products we need to consider the psychological state and needs of our customers. By understanding how decisions are driven by customers’ emotional states we can design products that leverage on these emotions, rather than ignoring, or even worse, working against them.

As a starting point we need to understand that changing one's financial situation often requires behavioural change. It involves taking a look at one’s lifestyle and habits to assess where income and savings can be increased, and where expenses can be decreased. In this regard, changing one’s financial life has a lot in common with other behavioural changes such as eating more healthy and exercising more. That, as we all know, can be a real challenge. These all require us to deny ourselves pleasures here and now with the conviction that doing so will lead to even larger benefits later on (a healthier body, a better mood, more stable finances etc.). This is a real struggle for our brains. Luckily, research has identified that a good counterforce is to have the right kind of motivation in place.​

When designing products we should aim to fulfill three important psychological needs that are known to be crucial for building long-lasting motivation​. ​​

First, we need to induce a feeling of competence. One strong predictor of financial behaviour is a person’s financial self-efficacy. That is the person’s belief in their own ability to influence their financial situation. Personal finances is a sensitive topic that for many is associated with anxiety and feelings of insecurities. It is important to keep this in mind and build products and communication that help customers overcome this. By strengthening their sense of competence, customers will start making better financial decisions.

Methods to achieve this can involve revising the language being used so that customers can more easily understand what is being communicated. A sense of competence can also be strengthened by providing positive feedback on the customers’ behaviour. For example by showing the customer how her actions help bring her closer to her goals and how many small changes will result in a larger sum.

The second need to consider is that of relatedness, where the customer feels connected and a sense of belonging. To increase a customer’s feeling of relatedness she needs to be approached in the right way, using the right language and being offered products and services that are relevant for her. To do this, banks need to understand where each customer is on their journey. As a foundation, customers should be supported to build a good financial ground to stand on in terms of appropriate buffers, down-payment of expensive credits and alike. As a next step, banks should help customers build finances that help them achieve their goals and enjoy life.

We also know that social norms have a large influence on how we feel and act with regards to our finances. In society today, we are bombarded with messages from advertisements, social media or even our own social circles telling us that consumption signifies a successful life. Changing these social norms from placing value on meaningless consumption to highlighting mindful money management is no easy task. This is precisely why large and influential actors such as banks need to be part of that journey.

Lastly, one needs to cater for customers’ feelings of autonomy. This involves promoting a sense of choice and volition. The customer needs to feel that she is taking action because the end-goal is important for her as an individual. That is, we need to help customers move from extrinsic to intrinsic motivation.

A person is driven by extrinsic motivation when an activity is performed solely in order to receive an external reward (e.g. receiving money) or avoid a punishment (e.g. getting fired from one’s job). Intrinsic motivation on the other hand, is when an activity is performed out of enjoyment for the activity itself. For example, one practices a musical instrument solely because one gets pleasure out of doing so. In essence, research shows​ that the closer the source of motivation is to a person’s inner values and needs, the more likely sustainable behavioural changes are to occur. For most people managing money falls into the category of extrinsic motivation. Research has shown that monetary rewards are typically a poor motivator for lasting behavioural change. This is unless you give money more meaning and associate it to motives that are closer to a person’s desires and values. Research has indeed shown that the type of motivation behind making money is a key mediator of money and wellbeing. People who are motivated to make money based on self-integrated motives are more likely to have high wellbeing​. Still, rather than encouraging customers to focus on why money matters to them, today we often see banks act in completely opposite manners. A large focus is being placed on extrinsic motivation such as communicating around money in purely rational manners without connecting to the customers’ values and emotions. This is one point where banks should rethink their strategy. Customers should be encouraged to connect emotionally with their financial goals as this will increase their self-integrated motivation and thereby their chances of reaching those goals.

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