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Why do some financial capability interventions work where others fail, and what sets these successful interventions apart? – EY teams explore this question.
In brief :
- Is ‘knowledge’ the best way to model and influence financial capability?
- What do behavioural economics and neuroscience contribute to our understanding of financial capability?
- What levers do the most successful interventions pull to create change?
When it comes to human behaviour, ‘knowing’ and ‘doing’ are two very different things, and evidence across domains shows that more knowledge doesn’t equal better behaviour. Why should financial behaviour be any different? (Spoiler alert: it isn’t!)
But nonetheless, this guiding intuition (that building knowledge is the best way to improve financial behaviours) continues to frame most financial capability interventions. This is true despite researchers showing that the effect of financial literacy on financial behaviours was very small: financial knowledge accounts for only 1.8 per cent of the variance in financial behaviours1.
This forces us to ask the following question: Can financial education programs ever work?
We argue that they can, and that is what prompted us to write this paper.
In it, we explore the evidence for what does work in building financial capability and driving improved financial behaviours. In doing so, we present a more complete model for thinking about final decision making (the ‘DNA of a decision’) based on behavioural economics, cognitive psychology, behavioural neuroscience and extensive field evidence exploring successful interventions. The model looks at both internal and external factors influencing financial decisions and capability.
We argue that interventions which target as many of these factors as possible is key to driving better financial capability outcomes. This multi-faceted and interdisciplinary approach informs our 10 principles for generating better outcomes in financial capability interventions.
Summary
For too long, we have assumed that there is a vertical relationship between increased financial literacy and our financial capability as agents. However, there is little or no proof that this is the case.
By incorporating insights from behavioural economics, cognitive psychology and behavioural economics, we can identify the 10 principles of successful financial capability interventions and improve our chances of achieving intervention outcomes.
Download our paper to discover our 10 principles of financial capability, illustrated by case studies, stories and robust academic evidence.