The COVID-19 pandemic has put a spotlight on the financial fragility of many Americans. Much of Commonwealth’s work focuses on addressing this fragility by building solutions that support financial security. As we’ve done this critical work, we’ve also had our eye on financial opportunity, the step beyond security. To that end, we began working to understand the barriers to building wealth through investing.
Earlier this year, we released a summary of preliminary insights from this work in our early report, Invested. This blog post summarizes our research findings, the current prototyping work we are focusing on, and the recommendations we have for investing platforms based on our consumer research and prototyping work.
While COVID caused significant disruptions in the markets, long-term investing is key to creating financial opportunity for all. Our goal is to make investing more accessible so that the market is more prepared for inclusive economic growth as it recovers from the current economic climate.
Our research focused on identifying investing barriers to those least served by the investing ecosystem: women, people of color and lower-income households, with a particular emphasis on women and single mothers of color with household incomes under $80,000 per year. These groups represent a significant untapped market that investment companies are not set up to serve well.
We believe that to truly serve any target customer, the service or product design must address their specific needs and wants. We did extensive research to understand the distinct financial pressures, family context, preconceived notions, desires, and investing-related fears of women and single mothers of color and are developing solutions to address them. At the same time, the benefits of creating more accessible wealth-building tools for this group can extend to the rest of potential new investors, who may experience similar but less acute barriers to investing and challenges with current investing tools.
This target market presents an opportunity in terms of both size and reachability; our research suggests that there is a clear interest in investing once specific barriers are removed. We found that once research participants believed that investing could be for someone like them, they were excited to take action and begin investing.
As traditional investing platforms and newer fintechs fight for market share, designing experiences that specifically address the barriers for new investors to starting and continuing investing will be key to their success.
Given the importance of designing for people’s distinct needs, this section highlights the key differences between a “traditional investor” and our target population of women and single mothers of color with household incomes of up to $80,000 per year. Our research shows that our target population has:
Different financial lives
Women and single mothers of color with low-to moderate incomes have a distinct set of financial challenges and desires for their investments, which current platforms aren’t built for. This includes needs for:
- Ability to contribute small and varying amounts
- Option to fund investment accounts through alternative sources (e.g. a prepaid card)
- Shorter-term investment options
Different social context
There is a perception that investing is for “other people.” Our research participants voiced that they had a lack of investing role models and often did not see themselves reflected in current investment platforms. Given this, there was often a mistrust of financial institutions and a perception that investing requires large sums of money. We saw that these mindsets began to shift with increased exposure, support, and a small amount of seed money.
A need for investing platforms that build skills, knowledge, and confidence
Investing for the first time can be a daunting and a scary process. People feel intense emotions throughout the investing experience, specifically around market fluctuations. We found that alongside this, our research participants craved information so that they could feel in control and know whether they were making the right decisions. However, our participants found few resources that were clear, applicable, and suited to their financial context.
Recommendations for Investing Platforms
Commonwealth led design sessions to generate innovative concepts inspired by these research findings. We then developed prototypes of these concepts and tested them with financially vulnerable users. These prototype tests confirmed our initial research findings and allowed us to refine our innovations.
While we are continuing to develop and refine specific prototypes, we have key recommendations that investing platforms can act on now.
Reducing barriers to starting to invest:
- Use inclusive language and visuals. Women of color, like most other users, need to see that the platform is for people like them.
- Create a smooth, welcoming, and reassuring onboarding process. Fintechs are making strides in this area, but more work can be done to facilitate an easy, stress-free sign up. In particular, the step of linking a bank account, or alternative sources for funding, could benefit from reinvention.
- Provide fee transparency. Make it clear exactly how much users will have to pay to use an investing service, where that money will come from, and when. This is particularly important when you start off with just a small amount to invest
Reducing barriers to staying invested:
- Reduce jargon wherever possible. Use simple terms that someone can understand even if they are completely new to investing in order to make them feel that investing is for them. When specific language is required by regulators and is therefore necessary, provide an easy-to-access definition.
- Provide guidance and tools for self-education and analysis. Our research found that new investors wanted to build their skills and knowledge so they could feel more in control and empowered to make decisions. Our target market looked for easy-to-follow steps and ways to contextualize their own performance. Tools should be straightforward, relevant, visual, and actionable.
- Make funds easily accessible. Because liquidity is so important to our target user, platforms should ensure users have access to their funds when they need them and provide fee-free withdrawals.
- Use messaging to manage anxiety. Newsletters, push notifications, and in-app messaging can help normalize fluctuations and acknowledge the stress of investing. As new investors gain more experience and see more of this messaging, our research suggests they will become less worried about typical market movements, which can cause a new investor to sell.
As part of BlackRock’s Emergency Savings Initiative, Commonwealth is prototyping and testing solutions, from straightforward messaging and functionality tweaks to new platform features and new types of investment products. Contact Elizabeth Wiesner at email@example.com if you’re interested in learning more or partnering to test new innovative solutions to expand your market share while making a positive impact.
BlackRock’s Emergency Savings Initiative
BlackRock announced a $50 million commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step toward long-term financial well-being.