How to improve financial literacy with AI digital humans – where there’s a will, there’s a way

Almost half of the US population says their finances are the hardest topic to talk about. Among the things people would rather discuss? Their own death!

Our lack of confidence talking about money is likely one of the reasons that’s so, thanks to widely faltering financial literacy rates.

Or is that true? Almost three in four people are confident enough to claim themselves as financially literate, despite almost 60% not being able to complete two simple interest rate and inflation calculations. We say we’re confident when asked, but please don’t ask us to prove it.

So why do so many of us say we’re financially literate when we’re not – to the point where we’d rather talk about literally anything else?

Among other things, no one wants to come across as ignorant. We fear judgement from our peers – we fear people knowing we’re financially illiterate, because it’s embarrassing.

We can see that in many aspects of our lives. We, as human beings, worry that we don’t know enough about our health, so we avoid seeing a doctor; we put off taking our cars to the shop for fear of looking ignorant and foolish; even holes in our general knowledge can be a cause of embarrassment.

It’s like that episode of FRIENDS where Joey is enticed into buying the V edition of the encyclopedia, because he’s ashamed of being left out of intelligent conversations with his eponymous friends, but he can’t afford the whole alphabetized set, so his plan fails spectacularly.

However, unlike FRIENDS, financial literacy is no laughing matter. It has lifelong implications to our financial wellbeing; and, for those who have it, it can also be a crippling form of social anxiety.

The impacts of financial literacy

Financial literacy is the ability to understand the way the financial world works, and then using that knowledge to actively and successfully be a part of it. That means being clued up on everyday and important financial aspects of life, like managing money, saving, budgeting and investing. Lacking these skills is called financial illiteracy.

The financially illiterate can easily miss out on a chance to invest, manage debt, climb onto the property ladder and save for – and eventually enjoy – retirement. They can be impacted in their ability to afford healthcare. And they might even find themselves more susceptible to scams, being less acquainted with the many ways people are trying to defraud them.

It impacts everything in our lives, from adulthood onwards.

Financial illiteracy is a known problem for so many. Between 60% and 70% of Americans say they know they need to become more financially secure, they just don’t know how to get there.

And it’s not a great situation for banks, credit unions and other financial services providers, either. People who find it difficult to ask for help with their financial education (potentially hundreds of millions of them) are naturally less affluent and more risk averse – making them less likely to use a bank’s typically wide variety of products and services.

So let’s dig down deeply into the problem, and unearth some modern-day solutions that can be small but significant pieces in the financial literacy puzzle.

Some telling stats of financial literacy

There are some harrowing statistics on the current state of financial literacy.

• In the US, 66% of people can’t answer questions about interest rates, inflation, mortgage rates and the like – and that number seems to be growing.
• In New Zealand, almost two-thirds of people say understanding the level of insurance they need is just “too hard”.
• In the UK, nine in 10 people feel they are undereducated in their personal finances

Financial illiteracy starts at an early age

The genesis of poor financial literacy is, unfortunately, before adulthood. It’s no doubt a difficult problem to solve – a mixture of trying to teach young people skills they find quite unengaging, and which they won’t actually use in earnest until they’re independent adults.

Only one-third of states in the US requires students to take a personal finance course at high-school level. It leaves people with a lot of catching up to do once they reach adulthood and these things really started to matter.

The trouble is, by the time people reach that age, they’re largely expected to already know how the financial world works.

And if they don’t, it becomes really difficult to ask for help.

How conversational AI is helping people open up about their issues

In 2017, The University of Southern California used a digital human conversational AI therapist called Ellie to speak to soldiers returning from conflict zones. The study ultimately showed that veterans divulged more to Ellie than they did even on the official and anonymous assessment forms, meaning specialists could identify more hidden cases of PTSD in the process.

As Gale Lucas, a psychologist at the university explained: “Getting people to admit they have symptoms is an important step in helping them realize they’re at risk — and getting them treatment. With a virtual interviewer, you don’t have to ruin your career to begin seeking help.”

The same, in a sense, applies when getting people to open up about other issues; their financial or physical health, their imposter syndrome, their onboarding questions when starting a new job and (yes) their financial situation.

How conversational AI in digital humans can help with financial literacy

Here’s an interesting caveat to all the statistics we’ve listed so far on how destructive and widespread financial illiteracy can be. While there are numerous ways we can combat financial illiteracy, who people want to solve it is quite clear. Nearly half (47%) of people reckon it’s their bank’s job to help them make better financial decisions.

To date, there are a growing number of digital human conversational AIs working in the banking sector who can offer judgement-free advice.

• Josie for ASB, one of the biggest banks in APAC, is currently up-skilling after previously helping those starting small business get the right information.
• Mia from UBank, the leading digital bank in Australia, is an expert in the helping customers navigate the home-loan process.
• Dani, a replica of Daniel Kalt, Chief Economist at UBS Switzerland, can see his wealth management clients personally – digitally – even when the real Daniel is dealing with other matters.

And there are a number of benefits that can be felt by the customers of brands wanting to help solve this societal issue.

• Digital humans can simplify complex terms and give examples on request;
• They're always available for conversation, even when real people simply cannot be;
• They can repeat himself without loss of consistency (and without getting annoyed);
• And they cannot judge a person for asking a "silly, obvious or embarrassing question".

Lastly, digital humans educate through the spoken and written word (should conversational transcripts be turned on), as well as kinaesthetic learning, or “learning by doing”. They can include on-screen visuals to help those who are more visual learners – so all four learning styles are covered by the AI.

Who people are banking on to improve financial literacy

The fact that almost half of people believe it’s their bank’s job to educate and help them make better financial decisions is telling. From a consumer perspective, banks shouldn’t see this as a monumental task that’s been bundled to them by their customers – it’s a great opportunity.

Customers want their banks to get closer to them. Not many industries can say that.

And it’s not surprising, either. In one way, the decade-long movement towards digital has made the bank-to-customer relationship very functional, very efficient and rather utilitarian.

A recent PwC study finds that 64% of US consumers believe companies have lost touch with the human element of customer experience – 82% want more human interactions from businesses. Even as most banks try to make things as fast, efficient and “human free” as they can be, only 3% of customers want their experiences to be as automated as possible.

Plus, when digital banking offers largely the same functions and experience, where does a competitive edge come from? As so many financial institutions find their share of the customer experience being taken over by third-parties, delivering a direct human experience – even digitally – is an opportunity that works for both consumers and banking businesses.

Not to mention that when those customers are more financially literate, they’re more likely to make smarter money decisions – whether they’re taking on a mortgage, saving for retirement or using loan products they can afford to pay back.

Entering a recognizable future

So, all signs seem to point at the possibility that banks and financial institutions will be the ones who really push increased financial literacy to much-needed new heights.

That’s not to say there isn’t a need for other industries, as well as the education and public sectors, to play a part. The more we can get students to engage with their inevitable financial futures, the brighter that future is going to be.

And with emerging conversational AI technologies, it’s a recognizable future, too. One where you can have human conversations about important subjects; one where banks and other financial institutions can show caring, understanding and empathy to what can be an anxious topic.

If nothing else, it would just be nice to live in a world where we can talk more openly and (truly) confidently about money than we can our own demise.

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