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Enhancing Financial Health with Spending Control Functionality Innovations

This webinar, led by Professor Jonathan Zinman from Dartmouth College, explores innovative solutions to common consumer spending challenges. Highlighting the universal concern of overspending and debt accumulation, Zinman presents three key ideas to integrate spending control features into financial products. These include a Float-Free Credit Card to mitigate the slippery slope of credit usage, Spending Limits for better self-control, and Loan-linked Decision Aids to guide budget decisions on significant purchases. The ultimate goal is to enhance consumer welfare and ensure financial products empower better spending practices.

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Enhancing Financial Health with Spending Control Functionality Innovations

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  1. Adding Value with Spending Control Functionality Excerpted from IPA/USHFI Financial Products Innovation Fund II Informational Webinar Jonathan Zinman Professor of Economics Dartmouth College Scientific Director, U.S. Household Finance Initiative

  2. Innovating with Spending Control Functionality • Consumer pain point (generally speaking): • Many people feel like they spend and borrow too much • Business case premise: • Value-added in helping people do better • People will pay for that value-added, or it will pay for itself • Design strategy: • Attach spending control functionality to existing debt/payments products • Three ideas along these lines…

  3. Spend Control Idea #1: Float-Free Credit Card • Consumer pain point: the credit card slippery slope • Get new card/liquidity • Splurge during the float/teaser period • Don’t pay in full (even if intend to) • Product innovation: • Float-free credit card • Marketing that says: transparency not tricks • Business case could work because: • People value commitment (face real cost of spending at all times) • Selects better credit risks (more self-aware borrowers) • Eliminates transactors

  4. Spend Control Idea #2: Spending Limits • Consumer pain point: mad money factor with liquidity • Can we do better than the card-in-the-freezer trick? • Product innovation: consumer-imposed spending/withdrawal limits • Time-based ($50 cap on Fridays after work) • Amount-based (cut off after $300 this month) • Merchant-(category) based (the latte problem) • Channel: cards (MasterCard InControl); ATMs Too? • Business case could work because: • People value commitment • Selects better credit risks (more self-aware borrowers) www.poverty-action.org

  5. Spend Control Idea #3: Loan-linked Decision Aid • Consumer pain point: overspending on big-ticket items • How much should I spend on a car, house, college education? • Product innovation: link budgeting tools to loan • Could be voluntary, could be compulsory • Could be linked to concession on rate/terms • Channels: online, mobile, etc. • Business case could work because: • People value the help • Selects better credit risks (more self-aware, prepared borrowers) • Provides additional data for underwriting www.poverty-action.org

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