After over a year of research, we are excited to launch A Change in Behavior: Innovations in Financial Capability, the result of a project funded by JPMorgan Chase & Co. which assesses the landscape of financial capability-building interventions across the globe, with a special focus on Mexico and India. Highlighting an industry trend in its early stages, the report explores innovations that focus on triggering positive customer behaviors, especially at critical decision-making moments, such as when signing up for and using financial products, or when putting money aside to meet savings goals.
We define financial capability as the combination of knowledge, skills, attitudes and behaviors a person needs to make sound financial decisions that support well-being. This definition reflects an emerging industry view that focuses attention on behavior. Financial capability focuses on behavior change as well as the customer’s end state: financial health and well-being. This school of thought contrasts with traditional financial education, which has generally been more focused on the transfer of knowledge, skills, and information.
The financial capability approach stems from the growing body of industry research which reveals an important gap between knowing and doing. When techniques informed by behavioral economics are integrated into client interventions, people are more likely to translate their knowledge into action. While traditional financial education methods still predominate, our research identified a host of exciting financial capability innovations. These interventions range from personal counseling, to mobile apps that help customers understand their finances at a glance, to soap operas that embed financial capability messages and lessons.
In our assessment of over 100 innovations, we identified seven behaviorally-informed practices that show great promise for application in financial capability-building:
- Teachable Moments. Reach consumers when they are making financial decisions.
- Learning by Doing. Let consumers practice using products.
- Nudges, Reminders, and Default Options. Timely reminders and default options support good habits.
- Rules of Thumb (Heuristics). Mental short cuts help turn learning into habit.
- Make It Fun. Games and humor aid learning and retention.
- Customize It. Tailor advice to an individual’s specific financial situation.
- Make It Social. Leverage the influence of peers and culture.
As the number of first-time consumers of formal financial services expands rapidly over the next decade, it will be imperative that new consumers are able to use products actively for their own benefit. To address the huge financial capability gap, action from many stakeholders is required, including financial service providers, governments, and social service organizations that interact with clients at critical moments. The provider case for addressing financial capability rests on the risk reduction, enhanced product use, and long-run opportunity for growth that a capable clientele can bring. The policy case involves the government’s role as custodian of a safe and stable financial system that protects the vulnerable. And for the consumer, financial capability means greater confidence in using financial services in a way that promotes their ultimate outcome – financial health.
A Change in Behavior argues that a major redeployment of resources is needed to ensure that the millions of dollars spent on traditional financial education interventions yield substantial benefits. Its recommendations include enabling financial service providers to take a greater role in building financial capability; engaging social service agencies, such as hospitals that provide financial counseling to families experiencing a health shock; and strengthening governments’ focus on shared responsibility among stakeholders.
The full report and appendices, including dozens of examples of innovations in financial capability, are available online here. For your navigating ease, A Change in Behavior: Innovations in Financial Capability includes the following elements:
- Abridged Report (18 pages)
- Full Report (60 pages)
- Frequently Asked Questions (FAQs) – based on discussions with experts, including roundtables in Washington, D.C., Mexico City, and New Delhi
- Financial Capability Building Practices in Mexico
- Financial Capability Building Practices in India
- Catalogue of Innovations
- Executive Summary