Poor financial health and financial stress have been shown to lead to physical and mental health problems. Therefore, it is important to know how one's wallet is doing to be able to take the necessary measures in time if needed. TUM School of Management’s Doctoral student Emanuel Renkl's dissertation is dedicated to this task, based on the core question: How can we measure and increase our financial health in the best possible way? Looking for an industry partner to conduct research with real social impact, he connected with the Berlin-based FinTech startup Forget Finance, whose mission is to make financial health accessible to everyone. In the context of this collaboration, Forget Finance and Emanuel provide master's students with the opportunity to not only write their thesis but also gather hands-on experience in a purpose-driven startup. This concept appealed to TUM School of Management's Master’s student Philipp Winder - and so he chose to support Forget Finance.
A successful collaboration between business and science
Having written his own master’s thesis with a FinTech himself, Emanuel experienced how difficult it can be to find a research topic that is valuable to both academia and a company. At the end of such a collaboration, however, all parties are usually satisfied, as the companies appreciate the insights from academia and the universities have access to a unique research environment through the industry partner. Due to the existing collaboration between Forget Finance and Emanuel, Phillip was able to circumvent some of the preliminary logistical work and focus on the research. As part of this, he investigated the financial health of millennials and collaborated with the startup to develop the Forget Finance Score, which now enables users to analyze their financial health holistically. The exciting thing about this project, Philipp explains, "was to explore how to make financial health measurable and help people achieve better financial health in the long run."
Philipp's study will be valuable for further research in behavioral household finance. The study provides a solid foundation for additional research in this field, especially as the effect of Financial Health Scores on consumer behavior has not really been explored before, Emanuel says. Moreover, these forms of scores are "particularly interesting because they have the potential of being very useful for consumers to measure and improve their financial health by making personal finance enjoyable and easy," he continues.
Given the focus of the TUM Chair of Digital Finance on topics related to financial health and financial technologies, it was not surprising that Emanuel and Philipp received support from the university for this hands-on project. The Chair of Digital Finance at TUM School of Management regularly collaborates with FinTech companies to address relevant research questions in this area. The cooperation with Forget Finance is also part of the chair’s mission to increase the positive impact of financial technology on society.
How an academic study turned into a product
Financial health is a major problem in the European Union. At the same time, the United Nations Finance Initiative defines it as a lever for achieving 6 of the 17 Sustainable Development Goals. Philipp's thesis aligns with these findings. Even more - it also provided suggestive evidence that women feel significantly worse off financially compared to men. But what is financial health, exactly? In a nutshell, it measures a person's ability to meet their daily financial obligations and consumption costs, cope with financial shocks and recover from them. It also includes having realistic goals, feeling confident and secure, and maintaining control over one's finances.
Measuring financial health is thus a crucial factor for individual success and prosperity. This is where Philipp's study and the tool he developed come in. His thesis aimed to examine how the academic concept of financial health can be employed to design a user-friendly score that measures a consumer's financial state and provides concrete action items that encourage consumers to improve their financial health. Previous scales lacked holistic thinking and often required a lot of additional user input, which can be quite inconvenient. Too many response options, abstract questions, and non-personalized results also provided little benefit to users. For this reason, a user-oriented and easy-to-use subjective scale needed to be developed.
The Forget Finance Score
Active investor, bon vivant, fighter, or queen of financial security? With the help of the Forget Finance Score, users can easily find out which financial type they are. The use of different financial types in emoji design came directly from the findings of Philipp's study. In it, he found that users want to recognize themselves more in the results, which is why different personas were developed for the Forget Finance Score.
As Philipp’s study focused on millennials, the main goal of the scientifically based financial test was primarily to give young people an informed assessment of their current financial status and motivate them to take care of their retirement planning. A total of 23 questions analyze, among other things, whether sufficient savings have been set aside as a buffer, whether investments are too risky and how high the regular savings rate is.
What makes the test unique is that you don’t need hours of advisory meetings: In under 10 minutes, users can playfully measure their financial health and then receive personalized advice on how to improve their individual financial situation. Overall, Philipp and the Forget Finance team were able to implement what previous scales had been missing, namely giving users "concrete and personalized suggestions for improving their financial health," says Philipp.
About the TUM Chair of Digital Finance:
The Chair of Digital Finance is part of TUM School of Management. It focuses on financial technologies and investigates how they influence the financial behavior of consumers. To answer relevant research questions, the chair regularly collaborates with banks and fintech companies to harness the possibilities of Big Data as well as large-scale field experiments. The chair is particularly interested in conducting projects that promote not only financial inclusion but also the financial health of private consumers, as there is great untapped potential in this area in the FinTech sector.