> Posted by Center Staff
Last week the Center for Financial Inclusion released extensive new research funded by JPMorgan Chase & Co. on the current state of financial capability-building – that is, how providers are helping to prepare and support customers in making sound financial decisions. Highlighting a trend in its early stages, A Change in Behavior: Innovations in Financial Capability explores innovations from around the world that focus on triggering positive customer behaviors, especially at critical decision-making moments, such as when clients sign up for and use financial products, or when putting money aside to meet savings goals.
The research identified seven behaviorally-informed practices that show great promise in affecting changes in behavior. These seven practices are distilled from what is known about how to connect learning with doing, and are meant to help financial service providers and financial educators find ways to shift how they interact with customers.
The first practice, and in CFI’s opinion the most important, encompasses the idea of ‘teachable moments.’ Reaching consumers at the right time is essential for effective financial capability-building, and the right time is when a person is about to make an important financial decision or use a financial service. Research shows that information provided just in time is more likely to be retained and to influence behavior.
The teachable moments concept is a strong argument for provider involvement, as providers are uniquely present when customers are using their products. Financial service providers are particularly well-positioned to integrate the teachable moments practice into their products in a way that promotes better habits and behaviors. They interact with customers on a large scale, and those interactions generate the revenue that sustains the intervention. Every customer touchpoint is a potential teachable moment.
CFI’s new research highlights a number of providers from varying sectors that are incorporating the teachable moments practice into their products in a cost-effective and scalable way. In Mexico, for example, Banamex’s Saldazo product is a Visa card-based transactional account with an optional mobile service, co-branded with OXXO, Mexico’s largest convenience store chain. Saldazo uses text messaging and a call center to inform customers, answer queries, collect information, and encourage product use. Customers receive an SMS after each transaction, with messages encouraging account usage and providing tips, such as how to send money or buy air time. Messages are timed and tailored to the customer account lifecycle: new, frequent-use, and inactive customers all receive different messages.
This kind of engagement supports clients’ awareness and usage of products and services, and brings benefits to Banamex and OXXO. For example, Banamex and OXXO sought to increase use of the Saldazo card at retailers other than OXXO. After Banamex sent a blitz of targeted messaging through the SMS interfaces, card transactions at other retailers increased by 30 percent. The Saldazo account brings additional revenue and generates deposits for Banamex and yields vast amounts of customer information that Banamex and OXXO can leverage.
In another example, Microfinance Opportunities (MFO) works with financial institutions to take advantage of every contact with consumers to deliver or reinforce key money management messages. For example, MFO provides flip books with simple scripts and pictures that equip banking agents to explain products to customers, ensuring that agents, who may receive relatively cursory training, still provide accurate, consistent and complete information.
In the Philippines, MFO found that branchless banking customers who received training through such flip books became active users of the service. Preliminary results from MFO’s work in Zambia with VisionFund, an MFI, and Zoona, an electronic payments platform, suggest that providing education at specific consumer touch points improves knowledge, skills, and attitude towards money management, leading to more prudent borrowing behavior and financial planning. A critical element of this approach entails building the capacity and structuring incentives of front-line staff and agents.
There is an especially great opportunity for digital incorporation of the teachable moments practice. Tech-based entrants, such as fintech start-ups and mobile network operators, can incorporate features that increase engagement and enhance the capability of customers. Many of them have the technology to facilitate real-time interactions with their customers and deliver targeted information at the moments needed. HelloWallet, for example, partners with some of the largest minimum wage employers in the U.S. to provide information and personalized advice to help employees manage their finances and take full advantage of company benefits, with the aim of reducing financial stress for employees. As people move from job to job, especially in high turnover industries, they often withdraw money from retirement plans, and a surprisingly high proportion of employees borrow against their retirement accounts. HelloWallet addresses this kind of behavior at these crucial moments in the clients’ careers.
The concept of teachable moments suggests that interventions will be more effective if they are connected to real-life decisions. This points toward opportunities to reach people through social service organizations that work with people on matters like health, housing, or immigration. In some cases there is also a cost advantage from piggy-backing on touchpoints that already occur. The Local Initiatives Support Corporation (LISC) embeds financial coaching services in the delivery of social services. Their centers provide bundled financial and employment services in 76 communities around the U.S. A study on LISC’s effectiveness found that 60 percent of participants either increased their credit score or acquired a credit score for the first time, and nearly 60 percent of those who started with zero or negative net income moved to positive net income. There is an opportunity to see such promising routes to effective scale greatly expanded.
While there are unique advantages to getting providers more involved, there is also a very important role for governments to play. In recent years, many governments have developed national financial capability strategies that assign roles to various stakeholders. Included within these strategies, along with the appropriate use of subsidies, should be systematic experimentation, development of know-how by providers, data collection, and impact research. In developing such strategies, it is important to involve stakeholders and to take into account their readiness. Governments have especially sweeping opportunities to address teachable moments, as many types of government agencies interact with large numbers of people, often at specific teachable moments. The U.S. Consumer Financial Protection Bureau, for example, offers toolkits called ‘Your Money, Your Goals’ that support social workers in advising clients on financial decision-making.
Teachable moments for financial capability occur around critical life events – starting education, having children, setting up a household, immigrating, a serious illness, a new job, aging… The many organizations that accompany people during these life events need to be brought into the financial capability-building effort. Financial service providers are well-placed to intervene effectively and to help their customers at these critical moments in their lives. National financial inclusion strategies should identify opportunities for connections between social service agencies, employers, and financial institutions, and public resources should be available to facilitate their financial capability-building efforts.
This post was adapted from ‘A Change in Behavior: Innovations in Financial Capability’. For more on teachable moments, and the other six behaviorally-informed practices, click here.
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