Achieving Financial Stability Through Behavioral Design

Helping Americans Reach Their Financial Goals

Many Americans face difficulty adequately meeting their financial needs. In 2020, nearly half of Americans reported that they could not cover an unexpected $400 expense.¹ These economic challenges have all been compounded by the COVID-19 pandemic, and—as government relief has stopped and moratoriums expire—may continue to underscore financial vulnerabilities. As of May 2021, 65 million Americans were either “finding it difficult to get by” or were “just getting by” financially.² 

To address these challenges, many banks and non-profit organizations offer financial capability training to help provide the average American with the necessary information to learn and build a strong fiscal future. These programs are popular around the world, with global investment totaling billions of dollars annually.³ Though some well-designed financial education programs have been found to be effective,^4,5 research suggests that most programs are missing the mark when it comes to helping people not only set financial goals, but also follow through on them.⁶

Closing the gap between peoples’ goals and their actions is one of the primary use cases of behavioral science, a field at the intersection of economics, neuroscience, and sociology that seeks to identify features of our psychology and environment that shape our decisions and actions. Capital One's partner, ideas42, is a non-profit applying insights from human behavior to help improve lives, build better systems, and drive social change. They have helped individuals increase college savings, take up useful financial services, and avoid late payments and fees, among other outcomes.⁷ Recognizing the potential for behavioral science to improve the efficacy of educational offerings in improving clients’ situations, ideas42 partnered with Capital One to design a new workshop approach.

Barriers to Engagement & Action

From 2019 through 2021, the ideas42 team began speaking with educators, counselors, and academic researchers to better understand the landscape of financial education. We observed workshops offered by non-profits around the United States to uncover existing best practices and opportunities for improvement and innovations. We then interviewed clients in cities across the U.S., including New York, New Orleans, Houston, Los Angeles, and Savannah, Georgia to better appreciate the local context and challenges they navigate and identify features that inhibit engagement and action. 

Through their research, ideas42 discovered common areas of missed opportunity and a few consistent barriers: 

1. Information Overload
   Financial education workshops are often crafted for an audience with diverse financial knowledge and needs, but there is only so much that can be covered in an hour-long workshop. As a result, facilitators often make the mistake of trying to cover a little bit of everything, rather than focusing on what is most relevant or highest yield. What follows is a deluge of information, much of it outside the scope of what attendees are immediately interested in, or can act on at the moment. The density of that content can overwhelm the limited attention and constrained bandwidth of those facing financial distress, diminishing comprehension of the valuable, but buried lessons clients most need to pay attention to. 
2. Stigma and Distress
   Stigma limits the number of people who seek help in the first place; but even for those who do seek help, the anxiety of their experience can limit what they retain from the workshop. Facing the reality of one's financial position can be difficult, and we found that educators could unintentionally shame participants by imparting judgments on the financial decisions they have made, an approach that is only more likely to lead to avoidance behaviors. Within savings workshops, for example, we noticed much of the agenda focused on budgeting exercises that are difficult to follow – asking clients to estimate on the spot ambiguous household expenses or cut back on spending that brings them joy. At their worst, these exercises can be patronizing, diminishing the validity of clients’ existing decision-making or asking them to make cuts that will erode their quality of life.
3. No Follow-Up Plan
   A common feature of almost every workshop we audited was a lack of recommended or prioritized next steps, leaving it up to clients to figure out for themselves what to do with the copious amount of information from the workshop. While attendees may leave motivated to make a change, they are likely to fail to follow through on their intentions without having a plan for what to do next, or additional support to remind them or help them with those next steps. And even with the best intentions to follow up, daily responsibilities can quickly take priority at the end of a workshop and swallow up individuals’ attention and time. Low-income communities, in particular, face acute constraints on their bandwidth due to the context of financial scarcity.

Behavioral Design Opportunities

Following our research, we engaged with a team of Capital One associates to co-design new behavioral elements for their financial education program. Our collective goal was to help clients not only learn about financial goals and money management practices, but also set clients up to be able to take action on goals of their own choosing and overcome barriers. Our process involved testing prototypes of new training offerings to incorporate feedback and perspectives from the clients and educators. Our final workshop designs employed several well-documented behavioral tactics known to facilitate follow-through, including: 

1. Positive Framing
   We live in a society that stigmatizes financial hardship. As a result, feelings of shame can keep people from seeking help or attending a public workshop. When marketing our workshops, we tested both normalizing language and positive affirmations to reduce psychological barriers to signing up. Both worked, but the latter led to a greater number of people engaging with our marketing materials. Once clients were in the workshop itself, we set a reassuring tone from the beginning by explicitly stating the external factors that often cause financial hardship, helping to counter the narrative that experiencing these challenges is the result of personal failings.
2. Set the Right Goal at the Right Level
   Research shows that people are more likely to follow through on next steps if they identify a single, specific goal. These goals are most effective when set at a challenging but realistic level, and time-bound to a specific moment in the future.⁸ For our workshops, we created an approach that has been found in other settings, alongside other behavioral strategies, to increase savings balances by up to 37%⁹ We also helped clients recognize that they are already closer to achieving their goal simply by attending the workshop, leaning on research showing that a feeling of “endowed progress” – where an individual is given a sense that they have already made some progress toward completing their goal – helps motivate further action towards that goal.¹⁰
3. Organize These Steps Into a Specific and Actionable Plan
   To move from intention to action, clients broke down larger goals into more manageable and granular steps using planning prompts. Planning prompts or “implementation intentions”—which ask the individual to plan the specific date, time, and location of an action—have effectively increased vaccination uptake, voter turnout, and savings contributions.¹¹ Financial interventions that have incorporated planning prompts have been found to increase the likelihood of an individual repaying their loan on time by 23%.¹² We organized these plans in the form of one-page "roadmaps" clients could take home that highlight their goals and include the specific details of their next steps that will help them realize those goals, breaking down complex financial strategies into simple best practices to help individuals more easily act on what they learn.
4. Learn Localized Strategies From One Another
   In addition to the facilitator sharing established best practices, we sought to build-in opportunities for clients to learn from one another, recognizing that members of their own community can empathize with their experiences and hold localized knowledge on how to best meet their needs. This is not only beneficial for the recipients of this advice, but also to those who offer it. Behavioral science literature has shown that advising someone on what to do increases the chances that you yourself follow through on that advice.¹³
5. Personalize Reminders
   To increase the salience of plans that clients made during the session, we created a moment where clients set reminders for when they would complete the next steps they identified. Getting a reminder at the precise time when you intend to perform an action has been shown to increase salience and follow-through.¹⁴ One educational intervention using reminders led to 14% percent more clients opening a retirement account and a significantly higher rate of retirement preparedness.¹⁵
6. Default Follow-Up for Those Who Need Greater Support
   In addition to group workshops, many organizations offer additional services, such as one-on-one counseling or longitudinal programs. Often the next best step for clients attending a more general workshop is to take advantage of those more personalized resources. However, even if those resources are mentioned, they are rarely actively pursued by clients, and often seen as simply another task to add to their already full plate. Instead of leaving it up to clients to follow up themselves, we defaulted clients who attended our workshops into receiving a subsequent scheduling call after the session, leaving them an opportunity to opt out if they were not interested. By doing so, participation rates increased dramatically of clients agreeing to be contacted for a subsequent one-on-one session. 

Conclusion

Building behavioral features into these financial capability programs elicited a favorable response: we heard positive feedback from clients and facilitators about the new workshops we rolled out, with a specific appreciation for how the workshops were more approachable, actionable, and affirming. More importantly, we saw early signs of subsequent actions taking place post-training, including one-on-one counseling sessions. 

Nevertheless, big questions remain around how to best reach individuals who need financial assistance but do not engage with workshops like these. Partnerships with other players in the ecosystem, such as financial providers, housing agencies, and community-based non-profits could spur more preventative actions to help families build resilience and access existing support before they fall into financial distress. Behavioral science-based approaches like framing, de-stigmatizing/affirming language, goal-setting, personalization, and planning prompts can be leveraged in those efforts as well. As this work evolves, practitioners must keep the specific needs of their clients at the core of their work, continually seek to remove the barriers that those clients face, and track the financial outcomes of their participants to ensure their work is helping families gain financial stability and thrive.

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_{¹https://www.federalreserve.gov/publications/2021-economic-well-being-of-us-households-in-2020-executive-summary.htm}

_{²https://www.federalreserve.gov/publications/2021-economic-well-being-of-us-households-in-2020-executive-summary.htm}

_{³Fernandes, D., Lynch Jr, J. G., & Netemeyer, R. G. (2014). Financial literacy, financial education, and downstream financial behaviors. Management Science, 60(8), 1861-1883. Web: https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2013.1849}

_{⁴U.S. Army Natural Experiment (Skimmyhorn, 2015)}

_{⁵​​​​Brazilian Financial Ed H.S. Course (Bruhn et al, 2016)}

_{⁶Fernandes, Daniel and Lynch, John G. and Netemeyer, Richard G., Financial Literacy, Financial Education and Downstream Financial Behaviors}

_{⁷https://www.ideas42.org/projects/debt}

_{⁸Locke, Edwin A., et al. “Goal Setting and Task Performance: 1969-1980.” 1980, doi:10.21236/ada086584.}

_{⁹Fiorillo, Alexandra, et al. “Applying Behavioral Economics to Improve Microsavings Outcomes”}

_{¹⁰Nunes, Joseph and Dreze, Xavier, The Endowed Progress Effect: How Artificial Advancement Increases Effort. Journal of Consumer Research, Vol. 32, March 2006.}

_{¹¹Rogers, T., Milkman, K. L., John, L., & Norton, M. I. (2013). Making the best-laid plans better: how plan making increases followthrough. Cambridge, MA: Work. Pap., Harvard Univ. Web: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.649.9526&rep=rep1&type=pdf}

_{¹²“Small Changes, Real Impact: A Brief from the BETA Project”}

_{¹³A large-scale field experiment shows giving advice improves academic outcomes for the advisor. Lauren Eskreis-Winkler, Katherine L. Milkman, Dena M. Gromet, Angela L. Duckworth Proceedings of the National Academy of Sciences Jul 2019, 116 (30) 14808-14810; DOI: 10.1073/pnas.1908779116}

_{¹⁴https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3718389/}

_{¹⁵http://www.bhub.org/project/an-educational-intervention-to-promote-retirement-saving-among-hispanics/}