2020 was a year where our personal and professional lives blurred on an extraordinary scale and with the UK now in its third national lockdown, things seem unlikely to change anytime soon. The pandemic touched every aspect of our lives and this was – and remains – particularly true of people’s financial habits.
With the UK population facing mass unemployment and the risk of job losses still worryingly high, it is perhaps unsurprising that recent consumer research found that 43% of people have significant concerns about their financial situation and 40% want to save as much as possible in 2021 in fear of what is to come.
However, while the appetite to save is clear and spending dropped by 90% in July last year, a Bank of England survey found that in reality only 28% of households saved more in 2020 – a figure that was concentrated among high-income households at 42%, with only 22% from low-income households increasing their savings.
So, if people are being forced to spend less and want to save more, why is there still a glaring inequality when it comes to saving money?
Unsustainable savings habits
There are hundreds of financial wellbeing apps on the market that help people to save money. However, to date, traditional finance companies and fintechs have failed to grab the attention of the people disillusioned by low-interest bank rates and those underwhelmed by functional, process-driven apps. More often than not, these groups come from lower socioeconomic backgrounds and are more financially vulnerable, which means higher stakes.
While recent years have seen fintechs prioritise the consumer experience and invest heavily into improving it, this has so far only catered to those that are already digitally-savvy and financially literate. Most financial companies – new and old – have been unable to tap into the psyche of the unbanked or find novel ways to support those from various socioeconomic backgrounds with products that encourage positive and sustainable financial habits.
The psychology behind saving
What fintechs have so far failed to address is our innate human need for instant gratification and immediate reward. If we couple this insight with some of the habits of those least likely to save such as gambling or playing the lottery, an interesting proposition begins to emerge. What would happen if technology brought together the fun and thrill of winning that people receive from prize-linked games with the less exciting aspects of financial wellbeing?
A model that incentivises people to change their financial behaviour over the long-term by going further than simply providing an engaging customer experience is the key. It offers the excitement and reward that humans fundamentally desire, without people having to put any capital at risk as they would if gambling or playing the lottery.
The drive for financial inclusion
COVID-19 has shone a bright light on the inequalities that still exist in society today and there is plenty of evidence to show that poor financial wellbeing directly affects our physical and mental health. With the UK today regarded as a global fintech hub, it would follow that fintech leaders are in a powerful position to address this.
By digging deeper into the psychology behind our actions, fintechs should be looking to develop products that prioritise financial inclusion and promote healthy and sustainable financial habits. If done well, financial health tools have the potential to dramatically increase the support for those from lower socioeconomic backgrounds, which in turn will encourage them to contribute meaningfully to the national economy. This is something every fintech business leader should be thinking about so we can all play our part in the long road ahead to the UK’s financial recovery post pandemic.