Think Big Data. The Economist (5 minute article, college reading level) enlightens us on this topic in their article: “Big data, financial services and privacy:”

This is all part of an “intensifying data arms-race in finance”, says Magda Ramada Sarasola from Willis Towers Watson, a consultancy, which claims that no industry used more big data last year. Banks and insurers used to rely only on what customers and credit agencies told them, but today websites and mobile-banking apps let them get much more close and personal. Less conventional sources are also popular. Social-media profiles, web-browsing, loyalty cards and phone-location trackers can all help. In a trial, FICO, America’s main credit-scorer, found that the words someone uses in his Facebook status could help predict his creditworthiness (tip: avoid “wasted”). Even facial expressions and tone of voice are being studied for risk.

Just another reason to be careful with social media..your bank or lender may be reading but then again the lines between social media and finance seem to be blurring:

Regulators have a role to play, particularly in dealing with questions of discrimination and exclusion. If using someone’s browsing history to exclude them from an offer for a cheap flight is OK, is it also reasonable to use those data to lock them out of health insurance (eg, by assuming that someone who Googles doughnut shops is a bad risk)? Now that Amazon sells loans, Alibaba has a payments business and Facebook has patented a credit-rating system, regulators should be at least as worried about non-traditional financiers and fintech startups, which sometimes escape regulation.

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Questions for your students:

• What are other ways you might analyze Facebook posts to determine someone’s creditworthiness? Come up with 4-5 ideas and indicate whether you think it would be a positive or negative.
• If a bank looked at your social media activity, what would they think about YOUR creditworthiness?
• Do you think these practices of analyzing BIG DATA is a positive or negative development for consumers?

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Interested in credit scores? Check out this NGPF Activity: Calculate The Impact of Credit Scores on Loans

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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