Financial education: lessons from behavioural insights

• Context:
• The study:
• Key findings:
• Points to consider:

Context:

Financial education is one of the processes used to try and improve levels of financial literacy. Because financial literacy includes elements of behaviour, high-quality interventions and initiatives can help people improve their financial skills and take optimal actions when it comes to their finances. While the introduction of behavioural science in financial education programmes is a relatively new occurrence, it offers promising insights for designing these initiatives that take into account both the decision-making processes of individuals and the biases that may impact their financial choices. Combining these insights from behavioural science with more traditional ways of teaching can create a smarter, more holistic financial education that encourages people to make choices, change their behaviour and act in different ways that could enhance their levels of financial wellbeing.

The study:

This 2019 report from the Organisation for Economic Co-operation and Development (OECD) provides a brief introduction to the way that behavioural insights are used in financial education, before summarising five ‘lessons’ that policy makers and stakeholders in this area can learn from. The report is connected to an accompanying report – “The application of behavioural insights into financial literacy and investor education programmes and initiatives” – that is also referred to in this summary.

This summary describes five key findings from behavioural science that could lead to smarter financial education. These approaches are new and may not have been tested before, and the authors are keen to point out that small-scale pilots and evaluations would be necessary before rolling these ideas out more widely.

Key findings:

1. Make the provision of financial education content focused, straightforward, and easy to understand.
   • It is crucial to design financial education that is appropriate for the target audience and is relevant to the objectives of the intervention. This can be done by:
   • Keeping information short and appropriate, and not overloading people with information that is not wholly relevant or is too technical.
   • Developing easy-to-remember rules including basic principles such as rules-of-thumb, which use short practical rules in the face of more complex decisions. For example, ‘if it looks too good to be true, it probably is’.
   • Framing the information appropriately and positively, and ensuring it is relevant to the audience.
2. Make financial education programmes as personal as possible.
   • The programmes should be designed based on the way that people manage their finances and make decisions in real life. This should be done by:
   • Providing information at the right moment;
   • Raising awareness about personal biases, and allowing consumers to understand the biases that may affect their decisions and actions;
   • Combining individualised counselling, goal setting and coaching for greater personalisation, or in other words tailoring the education to the bespoke needs of the audience;
   • Remaining in line with individuals’ mindsets, and taking the consumer’s current mindset into account when delivering interventions;
   • Creating trust and connections with the audience through sociocultural elements and ‘stories’.
3. Go beyond only providing information, and design programmes that help people take actions.
   • A successful programme should:
     • Design tools to encourage better self-control;
     • Teach good ‘mental accounting’ techniques;
     • Promote immediate practice of the skills learnt.
4. Consider using digital channels to facilitate the application of behavioural insights.
   • It is easier to deliver behaviourally informed interventions through digital means. Websites and mobile applications more naturally facilitate the design of behaviourally informed interventions that can limit the impact of biases, and ‘nudge’ consumers into specific actions.
   • Digital channels are easily accessible, attractive and potentially entertaining. They are usually inexpensive and can reach a large range of target 4. 5. Consider using existing behavioural frameworks to design behaviourally informed programmes
   • Policy makers can use existing models and frameworks, which have been designed based on the scientific findings from exploratory studies. These models and frameworks are intended to be practical tools to develop financial education initiatives to promote behavioural change.

Points to consider:

Relevance:

• This report is relevant to all stakeholders and policymakers with an interest in financial education and financial literacy. In particular, those looking to develop or influence financial education interventions using behavioural science may benefit from reading this report.

Generalisability/ transferability:

• The toolkit is designed to be universal and applicable in all countries, though the initial focus is on OECD/G20 countries.