Flore-Anne Messy Deputy Head of DAF/FIN Division Executive Secretary of the International Network on Financial Education OECD Financial Affairs Division
Applying Behavioral Insights to Public Policies
A financial education (and consumer protection) perspective
FINANCIAL EDUCATION AND INVESTOR EDUCATION
CONFERENCE HOSTED BY CVM
7-8 December 2015
1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION
2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL
CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE
CHALLENGING
3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE
EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER
PROTECTION) POLICIES
4. A PLAN TO MAKE FINANCIAL EDUCATION
MORE EFFECTIVE
1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION
2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL
CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE
CHALLENGING
3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE
EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER
PROTECTION) POLICIES
4. A PLAN TO MAKE FINANCIAL EDUCATION
MORE EFFECTIVE
INFE
113 economies 260 public authorities
A technical committee
An advisory board
Outreach to other communities through
INFE Research Committee
Partnerships with IOs, NGOS and
the private sector
Global and regional policy platforms and
roundtables
Asia
Latin America
MENA
OECD/International Network on Financial Education (INFE) :
A broad project with wide outreach and partnerships
Work started in 2002! serviced by 2 OECD Committees
→ International Gateway for financial education
For more search : www.financial-education.org
OECD/INFE main work directions
Framework : National Strategies (high-level principles, publication, policy handbook)
Evidence & tools Financial literacy indicators adults youth (PISA) Evaluation Benchmarks : Core competencies
Effective delivery INFE Research Committee Peer review Practical guidance Partnership & capacity building
Target audiences Youth Women Migrants SMEs Vulnerable groups
Sectoral issues
Credit
Saving & investment
Pensions
Insurance
The Overall Framework (2012) OECD/INFE High-level Principles and Policy handbook (NEW!)
on National Strategies for Financial Education
General instruments •2005
Principles and Good practices on Financial Education and Awareness
•2014 OECD/INFE Guidelines for private and civil stakeholders in financial education
Sectoral Good Practices • 2008
2 Good Practices for Financial Education relating to Private Pensions & for Enhanced Risk Awareness and Education on Insurance issues
•2009
Good Practices on Financial Education and Awareness relating to Credit
Methodological tools
•2011
High-level Principles for the Evaluation of Financial Education Programme
• 2013 & 2015 Toolkit on measuring Financial Literacy and inclusion
•2015 Core competencies on financial literacy for youth
Target Audiences
•2012
OECD/INFE Guidelines for Financial Education in Schools
•2013
OECD/INFE Policy guidance on addressing women’s and girls’ needs for financial education
OECD/INFE policy and practical instruments
1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION
2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL
CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE
CHALLENGING
3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE
EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER
PROTECTION) POLICIES
4. A PLAN TO MAKE FINANCIAL EDUCATION
MORE EFFECTIVE
Why Financial Education
and Consumer Protection Matters
A changing financial landscape
• More inclusive : but with some room for improvement !
• More risky : uncertain future and more individual responsibilities
• More innovative : increasing role of technology
Without proper public policies: Negative spill over effects for all !
• Individuals and small businesses: Exclusion, overindebtedness, lack of savings for short & long term needs lack of trust, fraud & misselling
• Financial Industry: Missed market opportunities
• Governments : Remedy is more costly than prevention
Financial empowerment policies trilogy can help..
Global recognition
Financial Education
Financial Consumer Protection
Financial Inclusion
G20 (2010) Principles
for Innovative
Financial Inclusion
G20 (2011) High-Level
Principles on Financial
Consumer Protection
developed by the OECD
OECD/INFE(2012)
High-Level Principles on
National Strategies for
Financial Education
On the demand side
• Low level of financial literacy in all parts of the world
• Overconfidence in once abilities and in the environment
• Different needs of individuals
• Lack of appetite for financial issues
• Difficult to change behaviors in the short term and to obtain lasting effects
On the practitioner/policy side
• (Still) limited expertise and relevant research
• Not enough rigorous evaluation : uneasy and costly measure of outcomes
• Financial education (especially) like all education policies is a long term process while
• Resources and commitment at the policy level are often short term..
But may be challenging…
• This goes for both financial education and consumer protection
• The ultimate goal of both policies is to improve
individuals’ financial wellbeing... but this is hard to define.
… and there are a number of operational issues
Low knowledge of key concepts and overconfidence
Limited understanding of :
• the concept of compound interest
• Importance of risk diversification
Consumers overestimate their knowledge :
75% of US citizens have positive perceptions of
their own financial knowledge, only 14% are
able to answer all 5 simple financial literacy quiz questions correctly.
Difficulty in several areas of financial behaviours
Use of formal services
Planning ahead for unexpected life events as
well as important one such as retirement
Responsible use of credit
Groups at risks and in need
young
elderly population
women
low income
Migrants
MSME
Still low and uneven level of financial literacy (OECD/INFE 2012 survey, OECD PISA, 2014)
Low level of adult’s financial knowledge worldwide : The example of the concept of compound interest (OECD, 2010, 2014)
→ More data at www.financial-education.org
Next OECD/INFE survey in 2015
15%
23%
30%
22%
10%
OECD average-13
Distribution of student performance
625 and above
550 to <625
475 to <550
400 to <475
Less than 400 points
PISA financial literacy (OECD, 2014)
Gaps in financial literacy performance
among 15-year-old students
Top performers
Baseline
More data at : http://www.oecd.org/pisa/keyfindings/pisa-2012-results-volume-vi.htm
Next exercises in 2015 & 2018
1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION
2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL
CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE
CHALLENGING
3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE
EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER
PROTECTION) POLICIES
4. A PLAN TO MAKE FINANCIAL EDUCATION
MORE EFFECTIVE
• Policy handbook on national strategies for
financial education, G20, OECD, 2015
(based on INFE member contributions and
accumulated research)
• Review of research on what works on financial
education for long-term saving and investments,
OECD/INFE, 2015
• Behavioral economics and financial consumer
protection, 2015, G20/OECD Task Force on
Financial Consumer Protection
• Can behavioral economics be used to make
financial education more effective? In Improving
Financial Education Efficiency, OECD, 2011
• Global database of financial/investor education
initiatives : www.financial-education.org
Selected (OECD) sources :
Individuals’ biases (Della Vigna’s taxonomy, 2009)
Non-standard preferences
Time inconsistency
Present bias
Problems with self control
Reference dependence
Statu quo bias (loss
aversion & endowment
effect)
Mental accounting
Social preference
Non-standard beliefs
Overconfidence
and over-optimism
Non-standard
probalistic thinking
Non-standard decision making
processes
Limited attention
Emotions and Affect
Behavioral economics: the basics
Bounded rationality – we are not homo economicus…
Use psychology, cognitive and social sciences to identify :
Public interventions are needed if the situation is :
Significantly harmful for either consumers, the market (unfair competition) or the overall economic situation
Due to non-standard consumer behaviors (or biases)
Different possible levels of (cheap) intervention :
Framing information to induce a particular behavior
Change the choice environment (limited, auto-enrolment, default option)
Control product marketing to avoid competition based on consumers biases rather than their interests
Control/ban of unsuitable products (or require to include special features)
Behavioral findings and public interventions
Nudging
Be
fore
in
terv
en
tio
n
Overcome limited attention & present bias : easy access (e.g use of digital tools)
Address ambiguity aversion → single source of info
Make programme salient : young more present-biased → focus on benefit of FE
Provide FE at adequate time: Teachable moments, life-stages approach
Debiase perception : through a test to address overconfidence
Appeal to social preferences to stress the programme popularity
Du
rin
g in
terv
en
tio
n
Limited attention : narrow the scope, focus on key concepts, repeat interventions, provide information for later
Make programme salient by segmenting the audience and tailoring initiatives
Debiase individuals by making them aware of their “’mistakes”
Provide “rules of thumbs” and build skills (including basic probability)
Harness environment conducive to learning (schools, workplace)
Use individuals social preference (peer pressure)
Aft
er
inte
rve
nti
on
Address procrastination : connect financial education programmes to immediate possibility to take action
Provide a toolbox for (step by step) action with regular reminders and recognition of achievements
Encourage people to use self- commitment devices (when aware of their biases)
Directly design and implement commitment devices using digital technologies
Harness peer pressure (savings clubs, social media)
How these findings (can be) are used to
improve financial education outcomes
• Less can be more.. But is not easy to put in place (complexity of products) – a few tips :
• Absolute figures rather than percentage
• Past returns should be used with caution especially when planning for retirement is involved
• Key information underweighted by consumers : fees, likely insurance losses
Improving disclosure
• Auto-enrolment
• Smart default options (adapted to beneficiaries ages)
Limiting and framing choices
• Cooling-off periods
• Explicit consent of consumers
Requesting specific features
How this findings (can be) are used to
improve financial consumer protection
BE is a (relatively) new area of research when applied to financial policies (quite often run in lab and need to be confirmed by field RCT experiments)
To improve individuals’ wellbeing, such interventions have to take into account that :
• Population’s interests are not homogeneous
• Regulators may have limited capacities and have their own biases towards the short term
Nudging is not education - The financial system evolves faster than choice architecture and regulation : people will need to adapt to take financial decisions
Other types of research are needed : including those aiming at determining what is financial wellbeing and how to improve it
A word of caution
Behavioral insights are useful and used to improve FE and FCP policies –
as they improve our understanding of individuals, But :
→ Focusing solely on behaviors may narrow down the reality to normative
approaches which may not be suitable to all and may become outdated.
1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION
2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL
CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE
CHALLENGING
3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE
EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER
PROTECTION) POLICIES
4. A PLAN TO MAKE FINANCIAL EDUCATION
MORE EFFECTIVE
Identify barriers and challenges
to financial education
Know and segment the audience
Develop regulators capacity but also train
trusted partners
Design & implement interventions to address
individuals’ and their communities contexts
and biases
Monitor and evaluate interventions
Effective Approaches to Financial Education A building-up cycle
Effective Approaches to Financial Education
Know your audience : one size does not fit all!
Use
sm
art
wa
ys to
se
gm
en
t th
e
au
die
nc
e a
cc
ord
ing
to
th
eir
ne
ed
s
Quantitative surveys on investor/consumer financial literacy levels, but also..
Qualitative information to understand where the problem(s) are using complaints (ombudsman and mediators), focused groups and research (UK anthropological and community survey)
Simple indicators of financial behaviors to monitor changes
Go
beyo
nd
and u
nders
tand :
How to prioritise audience : e.g TARPARE model (using findings from health field) : population at risks but also populations more receptive to interventions (low-hanging fruits) and accessible – while keeping in mind equity criteria
How different audiences would like to receive the information/education
Effective Approaches to Financial Education
Develop regulator capacity and train trusted partners
Regulation ≠ Education : to be effective education requires
specific capacities
• Independence in communicating important messages
• Credibility/Brand to reach out to investors/consumers
• Expertise in communicating (and financial issues) with and educating different target audiences
• Proper research and evidence to design initiatives
• Means to implement policies or sound ways to delegate implementation to partners
Harnessing the role of partners allows to reach out to
a wider & hard to reach audience
Why ?
• Regulators may not have the resources to efficiently outreach the whole population
• Some NGOS and networks have particular expertise and know-how to outreach particular groups
• Some segments of the population may prefer to receive education from people they know and trust
In doing so, it is important to :
• Identify adequate and trusted stakeholders
• Provide on going and appropriate training as well as incentives
• Monitor the process to ensure quality delivery
Effective Approaches to Financial Education
Monitor and evaluate interventions
Report results and draw lessons from monitoring & evaluation to fine-tune interventions’ design and tools depending on the audience
Interventions should be monitored during and after to understand why they worked ( and for whom) or why they did not (and for whom).
Test/pilot interventions with focused groups before scaling them up
Robust quantitative and qualitative evaluation methods should be used and adapted to interventions’ goals, scope, audience and resources
Monitoring and evaluation designed with the intervention and the setting of its main objectives
Global set of policy instruments on financial education and methodology
Global matrix of evaluated programmes and initiatives
• For adults : New OECD/INFE survey in 2015/2016
• For youth : Release of the 2015 PISA financial literacy results in 2017 and new exercise in 2018
• Core competencies on adults’ financial literacy
Cross-comparable evidence on financial literacy and inclusion & benchmarks
• Continue to learn from behavioural economics & social marketing
• Explore other education fields which aim to change behaviours : e.g health
• Assess impact beyond behavior : financial wellbeing definition, scope, approach
More academic research needed to inform policies : INFE Research Committee & Academic Journal
• Work on women, youth, migrants, MSMEs
Refined analysis and tools to address the needs of specific subgroups
OECD work ahead
27
OBLIGADO
MUCHAS GRACIAS
THANK YOU
MERCI
?
[email protected] www.oecd.org/finance/financial-education
www.financial-education.org
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