1. Consumer Financial Health Study
Financial Health Segmentation

2. Acknowledgements
Introduce Denise to say a few words about why they are excited about the study.

3. Defining Financial Health
1. Are you prepared for the unexpected?
2. Are you able to pursue opportunities?
3. Do your daily financial activities support both of these goals?

4. We asked America, How are you?

5. What we heard. . .
30% of American households can only make ends meet for 3 months or less if they were to experience a sudden drop in income
27% of Americans report having less than $1,000 saved for retirement.
43% of Americans describe themselves as struggling to pay bills and credit payments.

6. Survey Details Survey Vendor: GfK Survey Timing: June – August 2014
Sample Size: 7,100+ consumers
nationally representative sample; over-sampled consumers with under $50k annual income; weighted data to general population
Method: Online
homes without internet access were provided ISP services and a netbook; English and Spanish

7. Financial Health Indicators
Survey Topics
Financial Products &
Services
Financial Health Indicators
Psychographics
Checking account
Savings account
Prepaid card
Payroll card
Direct deposit
Credit products
Internet & mobile banking
mRDC, , text
Check cashing
Other non-bank financial services
Risk aversion
Financial stress
Confidence about meeting financial goals
Sense of being in control
Attitude toward trying new technology
Attitude toward debt
Attitude toward fees
Provider/product loyalty
Day-to-day
Monthly cash flows
Monthly debt obligations
Keeping up with bills
Budgeting
Resilience
Savings habits
Plan for expenses
Handle job loss
Health & life Insurance
Opportunity
Retirement savings
Planning horizon
Credit score
Subjective + Objective
Demographics
Age, income, marital status, education, geography, kids in household, employment status
Note: This list is intended to be illustrative of major areas covered in the survey; however, it is not an exhaustive list.

8. Segmentation Latent Class analysis to form segments
Variables based on financial health definition
Day-to-day financial management
Resilience
Opportunity
Attitudes
7 segments identified

9. Key Findings
About the Survey
About the Survey Survey

10. Key Takeaways 1
More than half of the U.S. population (57%) is struggling financially.
The financial health segmentation highlights distinct clusters of consumer behaviors, attitudes, and financial circumstances. Understanding consumers’ pain points and how segments currently use and perceive different financial products provides a foundation for targeted product design and marketing, enhanced nonprofit programming, and consumer-focused policymaking. 4

11. Financial Health Segments

12. Financial Health ’

13. Plan Ahead: Large Irregular Expenses
29%
Survey question: Does your household plan ahead to make sure you have the money to pay for large irregular expenses (for example, bills not due each month, such as insurance, property taxes, car registration, etc.)?
100%/0% split between Striving and Tenuous
Exception: Striving is highest rate of planning. Healthy segments have some who don’t need to plan.
Also, “we would plan ahead if we could” comes into play for Tenuous & Vulnerable segments.
In addition to the “yes, we plan” and “no, we don’t plan”, there are two other answers that are worth noting: (a) “not needing to plan ahead” is more prevalent amongst healthier segments that also have more cushion and cash reserves; and (b) “we would if we could” is more prevalent amongst the Tenuous and Vulnerable segments suggesting that there is a desire to plan (and potentially an opportunity to help them do so).

14. Budget or Spending Plan
Question: Does your household have a budget or spending plan that you use to guide how your money gets spent each month?
Exception: Striving has the highest rate with At Risk just eeking out Thriving.
Healthy segments may not need to budget for the same reason they didn’t need to plan as rigorously.
Less healthy segments may have difficulty budgeting due to income volatility (next slide).
Budgeting is another exception to general trends we see amongst the indicators, with the Thriving segment being relatively low and Striving having the highest rate of budgeting. It’s possible that the Thriving segment doesn’t feel the need to budget (similar to the planning ahead phenomenon) because they have ample cash reserves.

15. Saving Habits
Question: Which one of the following statements comes closest to describing your saving habits?
Saving habit will impact all three elements of financial health.
The “Don’t Save” category includes two answers: “Don't save - usually spend more than income” and “Don't save - usually spend about as much as income”. The At Risk segment has the highest rate of spending more than income, at 25%. (12% for Unengaged and 9% for Tenuous.) Of the three answers that constitute the planned saving category, “Save regularly by putting money aside each month” is by far the most common answer.
Saving with a plan includes: (a) saving regularly by putting money aside each month; (b) saving income of one family member, spending the other; and (c) spending regular income, saving other income (where “regular income” include wages, salaries, pensions and other income you receive on a regular ongoing basis ; and “other income” includes bonuses, gift money, occasional investment income, tax refunds, etc.)

16. Non-Mortgage Debt-to-Income Ratio
Non-mortgage debt-to-income (DTI) ratio assesses total outstanding non-mortgage debt (as opposed to monthly debt payments included in the FOR) in the context of total annual income (as opposed to monthly income included in the FOR). Non-mortgage debt-to-income ratio was calculated by aggregating a household’s student loan debt, medical debt, and other non-mortgage debt, and then dividing that number by the household’s annual income. Where medical debt was unknown, $0 was assumed. A non-mortgage DTI of less than 10 percent is considered a manageable amount of debt; a ratio between 10 and 40 percent is considered high, but still manageable; and a ratio over 40 percent is considered unhealthy.

17. Key Takeaways 1
More than half of the U.S. population (57%) is struggling financially. 2
Consumers’ behaviors and attitudes within financial health segments are consistent across the core elements of financial health.
The financial health segmentation highlights distinct clusters of consumer behaviors, attitudes, and financial circumstances. Understanding consumers’ pain points and how segments currently use and perceive different financial products provides a foundation for targeted product design and marketing, enhanced nonprofit programming, and consumer-focused policymaking.

18. Consistency Across Financial Health Measures
Healthy
Coping
Vulnerable
Total (%)
Thriving
Focused
Stable
Striving
Tenuous
Unengaged
At Risk
Day-to-Day
I seldom or never juggle bill payments 65 99 89 94 53 45 55 13
My household never runs out of money before the end of the month 58 87 93 42 36 6
I do not always find myself living paycheck to paycheck 41 73 70 19 10 14 1
My household keeps up with all bills and payments without any difficulties 52 98 79 34 23 3
I do not worry all the time about meeting monthly expenses 47 96 72 33 25 7
I always pay off my credit cards in full 67 30 22 44
I am confident I can meet my short-term saving goals 92 51 26
My finances do not cause me significant stress 88 57 63 28 18
I am highly satisfied with my present financial condition 84 40 46 15 16 2
Financial obligation ratio under 40% 77 64 43 9 27
My household plans ahead for large, irregular expenses 56 66 74
100 20
My household has a budget or spending plan that is used to guide monthly spending 50 37
Resilience
I am very or somewhat confident I could come up with $2,000 if an unexpected need arose within the next month 49 31 4
My household could make ends meet for more than three months if faced with a drop in income 32 17
My household has $10,000 or more in liquid savings 90 8
At least one person in my household has health insurance 75 85 78 81 69
At least one person in my household has life insurance 62 71 82 29 48
Opportunity
Non-mortgage debt-to-income ratio under 40% 83 86 60
I do not have too much debt right now 97 59
My household has $10,000 or more in retirement savings 21
I am confident I can meet my long-term goals for financial security 61 24
I have the skills and knowledge to manage my finances well 54
I am willing to take some risk when I save or invest
I save regularly with a plan 35
When I think about saving money for the future, the most important time frame is the next 5-10 years or longer 12
The point of this slide is less the specific indicators and data points, and more the overall trend: green (closer to 100% predominates for healthy); yellow/orange predominates across all categories for Coping; and we get into more orange and red territory for Vulnerable.

19. Day-to-Day
Not just a gradual decline from Healthy to Coping to At Risk, but significant, step-wise drops, underscoring the chasm between Healthy segments and the other segments. We see the same patterns across the core elements of financial health.
Trend holds for many (depicted here) but let’s look at some exceptions to this trend.

20. Resilience
In this diagram of the resilience indicators, you see the same patterns as we saw with day-to-day, but you also see the Unengaged segment start to differentiate further from the Tenuous segment. You also see that the Coping and At Risk segments do better with insurance coverage, though we should note that we asked about “at least one person in the household” and coverage alone (not amount or quality of coverage).
Note that ability to weather financial ups and downs is not just how much you have in your bank account, but also access to affordable credit and a network of family and friends (as well as social services).

21. Opportunity

22. Key Takeaways 1
More than half of the U.S. population (57%) is struggling financially. 2
Consumers’ behaviors and attitudes within financial health segments are consistent across the core elements of financial health. 3
While income influences financial health, consumer behaviors – esp. planning ahead and saving – also have an impact on consumers’ financial health.
The financial health segmentation highlights distinct clusters of consumer behaviors, attitudes, and financial circumstances. Understanding consumers’ pain points and how segments currently use and perceive different financial products provides a foundation for targeted product design and marketing, enhanced nonprofit programming, and consumer-focused policymaking.

23. Income Doesn’t Tell the Whole Story

24. Behaviors Matter Plan ahead for large, irregular expenses
Habit of saving regularly

25. Key Takeaways 1
More than half of the U.S. population (57%) is struggling financially. 2
Consumers’ behaviors and attitudes within financial health segments are consistent across the core elements of financial health. 3
While income influences financial health, consumer behaviors – esp. planning ahead and saving – also have an impact on consumers’ financial health.
The financial health segmentation highlights distinct clusters of consumer behaviors, attitudes, and financial circumstances. Understanding consumers’ pain points and how segments currently use and perceive different financial products provides a foundation for targeted product design and marketing, enhanced nonprofit programming, and consumer-focused policymaking. 4
The financial services community has an opportunity to help consumers adopt and sustain behaviors that contribute to improved financial health.

26. For Financial Service Providers . . .
1. Are we helping consumers prepare for the unexpected?
2. Are we helping them pursue opportunities?
3. Do the products and services we provide them each day support them in reaching these goals?

27. . . . and Beyond Significant consumer need
Financial services ecosystem
More than half of American adults are struggling financially.
They manage more complex financial lives than ever before.
Financial health requires:
supportive economic environment
available, robust social services
individual persistence
access to high-quality financial products and services
Needed or delete? (Purpose: expanded call-to-action - a la Amex’s feedback)

28. Join us at EMERGE Hilton Austin 700+ attendees June 10-12, 2015
Join us in Austin for our 10th annual conference.
700+ attendees
June 10-12, 2015
Hilton Austin
As a thank you for attending this webinar, we are offering $200 off our conference. Register before April 17th for a lower rate.
EMERGE offers the industry’s leading players a venue to network, develop new ideas, and advance innovations to meet complex consumer needs.
Register using discount code: FF15

29. Questions? Jeanne Hogarth jhogarth@cfsinnovation.com 202.888.7586

30. Thank you! Download the report: http://bit.ly/ConsumerFinHealth
Connect with us #finhealth Linked In: Center for Financial Services Innovation