Quality data is foundational to financial capability and well-being, whether that’s helping people make better decisions through improved financial literacy or empowering policymakers with the right information to craft effective policies that improve people’s financial lives.

Thea Garon, Associate Director in the Center on Labor, Human Services, and Population at the Urban Institute, has spent her career researching financial health and well-being and diving into the data. She created the Financial Health Network’s FinHealth Score®, a measurement framework that has become recognized as an industry standard. Now, at Urban Institute, she leads the Financial Well-Being Data Hub, an initiative designed to introduce evidence-based solutions to improve households’ financial security and advance equity.

As we continue FTA’s Financial Capability Month series, we sat down with Thea for a conversation about data-driven approaches to financial health, the power of digital tools to improve well-being, and lessons for policymakers on the importance of financial data. Read our conversation with Thea below. 

Q: Congress created Financial Literacy Month in 2004 to raise awareness about the importance of financial education to improve financial health. What role does financial literacy play in financial well-being? 

A: Congress originally named April “Financial Literacy Month” in 2004, but the Obama administration changed the name to “Financial Capability Month” in 2017. This update reflects an important shift from knowledge to action; financial capability refers to one’s ability to act on financial knowledge to effectively manage daily financial needs, build wealth, and achieve short- and long-term financial goals. 

Financial literacy remains an essential element of financial well-being. But moving the needle on financial well-being will require more than just financial education. Stakeholders from across the financial services ecosystem must design policies, regulations, products, and services that position consumers for success. Fortunately, a wide array of stakeholders – from national policymakers to local community organizations – have come to understand the important role they play in designing solutions that reduce financial inequities and ultimately enhance the financial well-being of all Americans. 

Q: The Urban Institute recently launched a Financial Well-Being Data Hub to bring more data into the conversation about financial health. What research questions are you exploring, and why do you think data is so important to understanding financial health?

A: People interact with a host of institutions, products, and services to manage their financial lives. Each of these interactions generates data that could, in trusted hands, be used to inform solutions to improve financial well-being. But these data are often fragmented in ways that prevent policymakers and practitioners from understanding the holistic nature of people’s financial lives. Without a comprehensive understanding of households’ financial situations, decision-makers cannot develop effective policies and solutions that help more people lead financially healthy lives.

The Financial Well-Being Data Hub is designed to address this challenge by bringing together disparate data sources to inform evidence-based solutions to improve financial well-being. By considering public and proprietary datasets, as well as insights from the experiences of individuals and families, the Hub is producing research anchored in a comprehensive portrait of people’s financial lives.

Q: Many young adults face challenges accessing credit and building a credit record. How do you think improved financial literacy and access to digital tools would help young Americans build a solid financial foundation for their lives? 

A: While many young people struggle to access and manage credit, these challenges are particularly acute among young adults of color. Last year the Urban Institute released research showing that young adults in majority-Black and majority-Hispanic communities were more likely than their peers in majority-white communities to begin their adulthood with lower credit scores and to see their credit scores decline as they aged. These disparities are rooted in decades of discriminatory policies that have denied communities of color equal access to affordable financial services and wealth-building opportunities.

Fortunately, several innovative fintechs are seeking to address this challenge. Goalsetter, a financial management app, uses games, memes, and pop culture to teach young people how to manage their money, access financial gifts from friends and family, buy and sell stocks, and build wealth. Greenwood Bank, a digital mobile banking experience made for Black and Latino customers, allows users to seamlessly manage their money through a series of accounts. Zest AI, uses artificial intelligence and machine learning to help lenders make better credit decisions, increasing fairness and reducing risk in the underwriting process. Alongside the efforts of these enterprising fintechs, a comprehensive suite of policies and regulations designed to address the root causes of disparities in the credit system is needed to ensure that every young person in America has an opportunity for a bright future. 

Q: How can policymakers and regulators take a data-driven approach to fostering financial well-being and ensuring more Americans can live financially healthy lives? 

A: Policymakers and regulators have an essential role to play in improving financial health outcomes across the country. For starters, they can heed calls for a National Financial Inclusion Commission that articulates a common definition and standardized set of metrics to collectively improve financial health outcomes across the financial services industry. They can strive to better align regulatory approaches with improved consumer outcomes through data analysis, public disclosure and market-based regulatory intervention. They can also make it easier for researchers to use and access public data, such as mortgage data available under the Home Mortgage Disclosure Act (HMDA) and bank performance data available through the Community Reinvestment Act (CRA). Ultimately, they can make a commitment to understand and embrace the latest research and evidence available when designing policies that protect consumers and advance financial well-being.