The Fintech 5 is a series of blog posts consisting of questions and answers designed to help you get to know the people in the Fintech Sandbox community.
Commonwealth is a national nonprofit that builds financial security and opportunities for financially vulnerable people through innovation and partnerships. These are interests we share. Through action-oriented innovation, Commonwealth is reshaping the financial industry to better serve individuals with low-to-moderate incomes (LMI) through collaboration with partners, policymakers, and employers on integrated solutions that transform communities and strengthen the economy.
Commonwealth collaborates with industry leaders to launch cutting-edge financial tools, security benefits, and transformative technologies to drive widespread adoption to create lasting change in financial security and wealth-building. Commonwealth’s mission is to make wealth possible for all through systemic workplace, financial and fintech innovation, and next-gen tech solutions.
Their recent research and initiatives include:
- Transforming Investor Identity, which offers insight into the ways in which the development of an investor identity can act as an enabler for beginner investors, conducted with support from the Nasdaq Foundation and in partnership with three leading financial platforms (Ellevest, Public, and Stash).
- Generative AI and Emerging Technologies, a national survey report that offers actionable insights around larger trends in using generative AI, chatbots, and digital financial services.
- The New College Investor — Opportunities and Challenges for Building Wealth, which explores the opportunities and challenges faced by college students with LMI embarking on their investment journeys.
- The Hidden Burdens of Student Debt & The Potential of Employer-Provided Solutions which explores how employers can help employees pay down their school loans, and recent policies that present new opportunities to do so.
Paula Grieco is a Senior Vice President at Commonwealth, where she oversees a number of the organization’s initiatives, including inclusive investing and financial AI, as well as strategic marketing and development. Paula spoke at Boston Fintech Week in October on the topic of emerging technologies, such as generative AI, and their practical use in retail investing and other financial service solutions.
#1. Paula, tell us about Commonwealth’s vision to have more than one million new low- and moderate-income investors by 2027, and to serve these investors responsibly.
Participation in capital markets is a proven driver of wealth creation. A growing body of research, both Commonwealth’s own and others, finds that people realize this—including and especially people living on low and moderate incomes (LMI), and that many want to participate and become investors. Yet there is an enormous gap between those who aspire to invest and those who actually participate in capital markets today.
We are embarking on a multi-year, national initiative to enable 1 million new investors—alongside a coalition of industry leaders committed to serving these new investors responsibly. This ambitious undertaking will showcase what is possible, demonstrate what we’ve learned, identify where and what policy actions are required, and foster new conversations about who can and should build wealth. Partnerships and sector collaborations are critical to effecting systemic change in the investing industry. Building the right coalition for this work is vital. The financial services industry will be critical to this coalition, as we see leadership and action by industry as the single most powerful lever of change. We welcome conversations with those entities looking to blaze new pathways for broader wealth creation.
#2. Why does Commonwealth want to get more college students interested in investing?
Actually, research demonstrates that college students are already interested in investing. We have a recent report where 80% of non-investor students from LMI backgrounds express a desire to invest. Commonwealth’s work is to ensure that this early investor market is recognized and served. Early investing presents an important opportunity for the 16.6 million undergraduate students enrolled at academic institutions and those who are recent graduates, providing a fundamental strategy for building long-term wealth and addressing pervasive racial and gender wealth gaps. Federal Reserve data shows white households hold on average eight times more wealth than Black households, with that figure growing to 17 times for the Millennial population and Gen Z.
A shift toward earlier financial engagement is evident: On average, today’s Gen Z adults began saving and investing at 19 years old, compared to baby boomers who started at age 35. Despite this progress, only 18% of young people aged 18-25 are currently investing, highlighting a significant opportunity to increase their involvement and set the foundation for greater financial security. The growing popularity of investing apps among young adults has likely contributed to the rise, creating unprecedented access to wealth-building opportunities for students interested in and actively investing.
However, despite an increase in the number of investors over the past decade, participation in capital markets remains lower among college students living on LMI, according to recent Commonwealth research.
#3. What are some of the barriers student investors from low- to moderate-income households encounter?
Commonwealth’s research reveals that while college students with LMI demonstrate an interest in capital market investing, they face significant barriers to building wealth. Our survey identifies three primary barriers that are likely to deter students with LMI from investing: fear of losing money, gender disparities, and knowledge gaps. These challenges highlight the importance of addressing the systemic concerns that may hinder college students with LMI and provide the necessary support to empower them.
Our work also offers areas of opportunity where industry leaders – financial institutions and fintechs, higher education bodies, and government—may play a role in fostering an inclusive investing ecosystem for college students with LMI. For financial institutions and fintechs, these include developing inclusive products tailored to the needs of these students and integrating streamlined technology features and positive messaging into educational resources and tools.
#4. What should we know about the potential of employer-provided student debt solutions?
Americans owe about $1.76 trillion in student loans, and one in four U.S. adults under the age of 40 has student loan debt. The average U.S. household with student debt owes $55,777. Clearly, student debt is a daunting issue for a significant portion of the population.
More than six in 10 people with student loans report that their student loan debt is a source of stress and emotional challenges (TIAA, 2020). Student loan repayment often takes priority over competing financial goals, preventing many Americans from building short-term savings or investing in retirement savings, and causing them to delay buying homes, getting married, and having children.
Employers can play a critical role in improving the financial well-being of their employees. Tens of millions of workers are feeling financial pressure and this financial stress is bleeding over into the workplace. In our research, we’ve found that nearly one-third of financially stressed employees say their finances are a detriment to their productivity. This is especially true for workers earning LMI. Yet, fewer than one-third of workers have access to workplace benefits that would help them manage critical financial needs. Employers can help build financial resilience for these employees with benefits like student debt assistance.
A 2021 survey by Betterment found that 74% of respondents would be likely to leave their job for an employer that offered better financial benefits; 24% overall, and 49% of Gen Z respondents, noted that student loan financial assistance or repayment programs could entice them to do so.
Many employers are offering student loan repayment assistance as a benefit to their employees to alleviate the student debt burden, and recent policies present new opportunities to do so. For example, the SECURE 2.0 Act allows employers to provide retirement contributions as a match for student loan payments, making retirement savings more possible for employees who are prioritizing paying off education loans.
Our research showed that 40% of respondents said student loan repayment benefits are very or extremely important to their overall employer benefit package. Asked to select the top three benefits they would participate in today if offered by their employer, 60% of respondents selected student debt relief; 47% selected an employer-sponsored retirement plan, and 38% selected an emergency savings solution.
By matching student debt payments with retirement contributions, workers may be able to double their 401(k) balances at retirement. In addition, focusing on student debt reduction and other benefits that address financial vulnerability such as emergency savings can help strengthen the health of the retirement plan benefit by increasing participation and reducing leakage from the plan.
#5. What is an “investor identity” and what can investment firms do to cultivate it among people who aren’t but could be investing today?
Tens of millions of Americans live paycheck to paycheck with little savings cushion and no meaningful wealth. This is a significant market of “regular working people” who want to save and invest, but are not well served today. This customer wants to invest in capital markets. They want to build wealth. However, there are barriers to their participation, creating a gap between desire and action. Investor identity is one of these barriers.
Investor identity refers to perceiving oneself as the kind of person that can or should invest, and that one belongs in the community of people who invest. It is the feeling that investing is “for me” rather than a space where a customer feels like an outsider. Our research showed that investor identity can be cultivated and developed over time: in fact, 71% of participants told us investing was easier than they thought once they got started.
With support from the Nasdaq Foundation, we launched the “Transforming Investor Identity Research Project,” a groundbreaking, national research and pilot program designed to expand the investing community and make it more inclusive. Over a year, we followed more than 850 beginner investors who each received $150 in seed funding to invest at one of three leading financial platforms: Ellevest, Public, and Stash. Our research unearthed what attracts, motivates, and sustains these new investors so they feel welcome in the wider investing community.
The project provides insight into how the development of an investor identity can allow new investors to fully take advantage of the wealth-building opportunities afforded by retail investing by overcoming initial feelings of doubt, discomfort, or not belonging.
Alongside the research, we created a toolkit for practitioners who would like to better understand investors earning LMI and apply best practices to how to enable and support the development of investor identity. All of our recommendations are based on the research and vary in the level of effort required from incremental, “low-hanging fruit” to new strategic initiatives.
These solutions correspond to each stage of the consumer journey (attract, activate, and retain). For instance, in the “attract” stage, you might use identifiers that address this group directly such as “new investors” or “first-time investors” along with warm, welcoming imagery and content that demystifies the investing experience. In the “activate” stage, consider providing opportunities for beginner investors to participate without the risk of feeling embarrassed through things like chatbots, individual live chats, dedicated webinars, and AI tools that provide safe spaces to ask questions.
#6. Which fintech problem or solution are you personally most interested in right now?
I’m actually really interested in two issues. Over 42 million households are living on LMI. I’m personally most interested in democratizing investing for these individuals who have traditionally been underserved by the investment ecosystem. While technology has expanded access in recent years, the gaps remain stark, particularly for Black, Latinx investors, and women.
Having conducted extensive research into the needs and wants of LMI investors, we’ve piloted human-centered solutions that we believe can increase access and close the interest/action investing gap: modest seed funding, access to quality products, relevant and actionable investing knowledge, and a fundamental shift in who we expect can and should be an investor. The next step is to use this growing body of evidence to drive action by financial service providers, by fintechs, by policymakers, and by people living on LMI themselves.
Second, I’m interested in how financial AI can be unlocked to transform financial security for those living on low to moderate incomes. As has been the case historically, next-generation technologies provide new and creative ways to improve financial security and opportunity for everyone, but they can also carry new risks if they’re distributed unevenly.
Financial services leaders, fintech entrepreneurs, social impact innovators, and others shaping the financial system can have a major impact on creating financial security through the thoughtful use of these technologies. Harnessing the power of AI to serve these previously untapped consumer segments also opens up potential new customer opportunities. This is a pivotal moment for innovators to expand and engage their customer base and bring more people into the financial system.
For instance, our Emerging Tech for All research initiative shows that conversational AI provides a key opportunity to improve access for households living on LMI. These households are nearly twice as likely to want to bank through in-person interactions, yet have significantly lower access rates to local bank branches. Conversational AI can provide the personalized and context-sensitive support this group seeks at scale in a way that has never been possible before. In a Commonwealth field test, we also found that a majority (57%) of LMI participants felt that using a chatbot positively impacted their financial situation.
That said, concerns about privacy and security remain barriers to engagement with conversational AI in finance. Overcoming these barriers through clearer communication and transparent policies will be an important part of building the kind of trust that will allow conversational AI to better support customer financial health.
Our 2024 national survey report, Generative AI and Emerging Technologies, additionally offers actionable insights around larger trends in using generative AI, chatbots, and digital financial services.
#7. If you could change one thing about the fintech ecosystem, what would it be?
Financial insecurity and wealth gaps remain widespread. They cause concern across the political spectrum, and they create social and economic harm. If I could change one thing it would be to ensure that the needs of financially vulnerable people are understood, visible, introduced early into relevant conversations, and integrated into solutions. To that end, in 2023, Commonwealth set a bold four-year strategic vision to drive systemic change in the workplace, in emerging technologies, and in financial services, enabling 10 million working families to build $15 billion in equitable financial security and wealth by the end of 2027. Commonwealth remains dedicated to achieving broad financial security and opportunity for all through continued innovation and partnerships.
Bonus question! What is the best career or life advice you have received?
Commit to your goal – but pair that commitment with adaptability in terms of how to reach this goal. You will inevitably encounter obstacles. The path to achieving a bold vision is rarely exactly as you planned it. I have found that a willingness and ability to pivot and to adapt, to be able to ask yourself, “How else might we do this?” or “What are our other options?” – is highly necessary to be effective.
Another bonus question! What’s the most interesting thing you’ve read recently?
I recently re-read “The Psychology of Money” by Morgan Housel. In the book, Morgan weaves historical and personal anecdotes on success and failures in capital markets as he shares both this theory on “the psychology of money” and evidence-based practical approaches to building wealth.
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