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Are cash and prepaids the key to helping customers budget ... and keeping them loyal?

May 21, 2014 by Rebecca Hellmann — Marketing and Sales Coordinator, Welch ATM

A 2014 consumer financial literacy survey from Harris Poll notes that only 39 percent of U.S. adults are keeping a budget or tracking their spending. A startling 32 percent of those surveyed do not save any portion of their annual income. Yet, few (27 percent) said they would be willing to seek professional financial or credit counseling.

The general belief is in self-reliance. U.S. adults believe they are capable of solving financial issues on their own.

How does a financial institution appeal to a demographic that wants to be both self-sufficient and better with finances, but has trouble budgeting and saving money?

By helping them help themselves, of course!

Cash – or pseudo-cash — is king

Budget experts insist that cash is essential to keeping expenditures down, and therefore, the simplest form of budget control. In other words, a quick stop by the ATM on payday to pull out a budgeted amount can help an individual stay within a budget. Once the cash is spent, there is no more. The physical presence of the money is a real-world representation of how much there is to spend — and it makes the consumer more aware of how it was spent.

Some prepaid cards are now adding functionality that can simulate this awareness through real-time account alerts. Other budgetary options let users segment their prepaid funds into individual accounts that are used for specific types of expenses. Groceries, for example, would pull from the grocery account while restaurants and entertainment would pull from a separate entertainment account. Once the money in each account is depleted, the card will allow no further expenditures in that budget category.

How financial institutions benefit

Providing cash access is something financial institutions have been doing forever. Encouraging use of access points while providing fun, cleverly disguised budgetary hints can promote proper financial management among your customers and members. Try running financial knowledge or location-based contests to keep cash access and finances top of mind.

Some people simply dislike carrying cash. Others love anything that uses technology. For these types, the budgeting solution might be prepaid cards with advanced functionality.

While setting up these systems is an investment for the FI, customers or members who use them will come to rely on their perceived power to help them control expenditures. Some might even be willing to pay a small monthly fee for the ability to carefully segment and manage their money.

Promoting financial literacy and budgetary restraint for customers and members has the additional benefit of presenting the FI as a positive, non-intrusive resource. It also prepares consumers to explore other product offerings from their bank or credit union such as retirement accounts, auto loans, CDs, mortgages and home equity loans.

About Rebecca Hellmann

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