You are currently browsing the tag archive for the ‘ideas42’ tag.
> Posted by ideas42
The following post was originally published on the ideas42 blog.
For many of us, saving enough for retirement remains a murky, unrealized goal. Behavioral science has already proven useful in some ways, but there are still many opportunities to apply a behavioral lens to better preparing for the future.
In Mexico, not putting aside enough for retirement is a persistent problem for many people. As a result, 27 percent of the nation’s elderly live in poverty. While recent reforms to the retirement system have provided more Mexicans with individual retirement accounts than ever before, mandatory contribution rates remain too low to provide for post-retirement living expenses. To cover the rest, the system currently allows people to make voluntary contributions to their individual accounts. The problem is that they don’t: currently, less than 1 percent of the 50 million account holders make at least one contribution each year.
> Posted by María José Roa Garcia, Researcher, Centro de Estudios Monetarios Latinoamericanos (CEMLA)
In the past decade, a group of key empirical studies have argued that a lack of education and financial knowledge can lead individuals to miss opportunities to benefit from financial services. Some may fail to save enough for retirement, others may over-invest in risky assets, while still others miss out on tax advantages, fail to refinance costly mortgages, or even remain outside of the formal financial sector completely. These studies suggest that such behavior is based on the reality that making financial decisions has become increasingly complicated. At the same time, as a result of sweeping changes in the economic and demographic environments, individuals have become increasingly responsible for their own financial decisions and the consequences of such decisions over the long-term. Changes in public pension plans, an increase in life expectancy, and an increase in the cost of health insurance have placed on the individual the weight of momentous decisions such as whether to take out private retirement insurance, or how much to save. Easier access to credit, a general increase in the accessibility and complexity of products and services, and a number of other factors make a range of financial decisions more consequential – and harder.
Governments, financial services providers, and related stakeholders have responded accordingly in recent years developing financial education programs and initiatives, but the results have been mixed. The bulk of the evidence available confirms that, in general, the level of financial literacy throughout the world is very low, especially among the more vulnerable groups: those with very low education or income such as senior citizens, young women, and immigrants. The lack of financial literacy within these groups has proven to extend beyond economic effects and produce negative consequences on health, general well-being, and life satisfaction. Many of the programs that have been introduced were part of empirical studies that evaluated the impact of financial education programs on subsequent financial behavior. There are many such studies that show that financial education improves financial decision-making.
Nevertheless, a body of work has opened an intense debate over whether financial education and information can truly affect the financial behavior of individuals (see here, and here). In many cases, despite the availability of financial education, persistently high rates of debt and default, and low rates of saving and financial planning for retirement have been shown to persist. The empirical evidence obtained from surveys and experimental work often shows that individuals pay little attention to the information and that their capacity to process it is limited. Most of the empirical literature to-date indicates that traditional financial education – clients receiving information in a classroom style setting or through printed materials – does not necessarily translate into behavioral changes, especially in the short-term.
> Posted by Elisabeth Rhyne, Managing Director, CFI
In my breakout group at CFI’s workshop last week in Bogota, everyone talked at once. With eight voices coming at me, my brain’s very basic ability to understand Spanish shut down. The workshop participants were bursting with ideas they urgently wanted to express. But, as my colleague Sonja Kelly pointed out, a situation where everyone is speaking and no one is listening is an apt metaphor for the problem the workshop sought to address.
The workshop focused on the challenges in integrating insights from behavioral economics into the operations of financial institutions. Two organizations that leverage behavioral economics for product design, ideas42 and Innovations for Poverty Action, presented the research perspective. Closely connected with academics at Harvard, Yale, MIT, and Princeton, both organizations start from the research finding that a number of cognitive and emotional biases cause people to make decisions that depart from rationality, and that these biases can significantly affect the use of financial services. Ideas42 focuses on identifying features in product design and delivery that, while not overruling choice, nudge people in a desirable direction – features such as commitment savings accounts or reminder messages to encourage savings. IPA promotes the same kinds of nudges, but focuses on the testing of these innovations through randomized controlled trials.
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
#169184903 / gettyimages.com
Close to Washington, D.C.’s antipode in Perth, Australia I attended the Fifth Annual Responsible Finance Forum, which this year focused on responsible digital finance. The organizers assembled an impressive mix of representatives from all three legs of the responsible finance stool – industry, regulators, and consumers. A number of familiar risk areas were examined during the two great days of presentations, debate, and discussion, and three prominent themes emerged for me: the centrality of the service agent, the increasing importance of financial education, and considering responsible finance at the ecosystem level.
The first day of the forum focused on the identification of risks to consumers from digital financial services (DFS) and the second day was framed around how to mitigate and minimize those risks. An online “Global Pulse Survey” that CGAP conducted as well as some demand-side research conducted by MicroSave and Bankable Frontier Associates (BFA) brought both the practitioner and consumer perspectives on DFS risks to the forefront. The MicroSave and BFA research canvassed nearly 700 DFS users and 50 non-users through focus groups in Colombia, Bangladesh, the Philippines, and Uganda. While respondents of the survey and focus groups identified a wide variety of harms or worries, some common items emerged, listed in the table below. Though preliminary, this data is extremely important in helping us frame the areas where stakeholders could focus to mitigate against client harm and risk. These risks fall squarely into the framework of the Smart Campaign’s seven Client Protection Principles, furthering our belief that a principles framework can carry forward into digital financial services.
> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
Fifteen years ago in the microfinance space you may have been able to get away with understanding very little about your clients. Without much competition, MFIs could probably still make a decent profit by offering one product to all their clients using only one delivery channel. Thankfully, those days are gone.
The base of the pyramid is no longer a hidden or forgotten market segment. In fact, according to the recently-released 2014 Microfinance Banana Skins report, the pendulum is swinging in the opposite direction. Overindebtedness once again tops the charts as the biggest perceived risk, perhaps indicating that many clients are now able to gain access to multiple services providers. In some areas, an excess of providers may now be crowding the market.
> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI
A few weeks ago J.P. Morgan made a $30 million commitment to create the Financial Solutions Lab, a move representative of the growing recognition among all financial stakeholders of the importance of financial capability.
The Financial Solutions Lab, a five-year initiative, will be managed by the Center for Financial Services Innovation (CFSI) and it seeks to bring together experts in behavioral economics, design, technology, and nonprofit services in order to develop innovative and scalable financial products and services that strengthen client financial capability and well-being. Ideo.org and ideas42 are to serve as strategic partners on the initiative. By bringing these stakeholders together, the Lab aims to identify new ways in which customers can improve credit behavior, increase savings, and build assets.
> Posted by Alexandra Fiorillo, Principal, GRID Impact
With more than 2.5 billion people around the world remaining un- or underbanked and major fluctuations in activity and usage among existing accounts, the financial inclusion industry still has work to do to increase the uptake and adoption of new products and services while also increasing the number of regularly active clients.
Many people understand the potential benefit of financial services and have the intention to use savings and loan products to improve their financial well-being. However, research shows that human beings do not always follow-through on their intentions. Frequently, we experience an intention-action gap due to psychological and external factors.
If we want to achieve full financial inclusion, we cannot simply offer more financial products and services to more people and hope they need, want, like, and use them. Instead, we should spend the necessary resources to ensure our products and services work for clients by doing two things:
1. Design products that meet the needs, desires, and preferences of our clients by collaborating with them on the design and delivery of these products.
2. Help our clients follow-through with the intentions and goals they have for their financial lives by focusing on taking action rather than just providing more information.
A new approach to product and service innovation, behavioral research and design, attempts to do just this. Drawing on insights from behavioral economics and principles from human-centered design, behavioral research and design attempts to uncover deep personal and contextual motivators and influencers to human behavior so we can better design products and services in a client-centered way. The goal of this method is not to focus on stated preferences and opinion or market research, but rather to develop deep empathy for human needs and desires while also making sense of observable behaviors – which may be contrary to people’s stated preferences. The tools often used in this approach involve in-depth interviews, behavioral and empathy mapping, customer journey maps, and other techniques focused on a small, indicative group of people. The multidisciplinary approach can help us better understand the motivations underlying people’s current behaviors and help us make more informed predictions about how people will behave when faced with new decisions in the future.
Facebook
Twitter
Recent Comments