Wellness is no longer just the territory of doctors. It’s become apparent that well-being extends beyond physical and mental health. Relationships, careers, and finance also all play an important role in people’s overall well-being and ability to function at an optimal level. At Mad*Pow, we are specifically interested in how we can apply our philosophies of human-centered design, empathy, and behavior change to help people achieve financial well-being. With that in mind, I attended the Behavioral Finance Symposium at the Center on Finance, Law, and Policy at the University of Michigan on September 14-15, 2017.
Speakers ranged from Nobel Prize winning economists (Robert J. Shiller) to financial policymakers (Phyllis Borzi) to academics (James Choi, Shawn Cole, Mehrsa Bahradaran, and many more) to commercial financial leaders (Tim Spence). Over two days, we examined financial policy and process from the perspectives of government, big and small business, research, and the individual person trying to save his or her way to retirement.
Key themes I took from the event included:
We don’t have a data-based understanding of financial behaviors. Across multiple panels, speakers mentioned that we often don’t have a good baseline understanding of people’s financial behavior. The ways in which data has historically been collected and shared, along with a focus on economic theory over psychology in understanding financial behaviors, have limited our progress in creating a comprehensive picture of American financial life. Speakers such as Diana Farrell of the JP Morgan Chase Institute are working to change that by aggregating and examining data, but there is much to be done.
Having data-driven insights could help us make simple adjustments in how we approach people about their financial well-being. For example, Stephen Wendel of Morningstar mentioned one study his team did where they found that people are more likely to take action on retirement advice on a Sunday evening. That’s when they’re at home and have access to other key decision makers in retirement planning. What if we timed prompts to review investments or set up accounts for the times when people are ready to take action?
People vary greatly in their needs, wants, and expectations. It’s not surprising that people are different from one another. Yet, not many companies are looking at defined sub-groups of the overall population when they create their products and services. A few of the factors I heard that might affect how you approach product design included:
- People are able to mentally separate how much they loved their college years and how much they loathe their college debt; this may create opportunities to leverage emotions in creating debt payment plans that work
- Millennials, having grown up with digital technology and without expectations about live financial advice, may be more open to roboadvising as a money management tool. If this proves true, it may change how the banking world transitions from high- to low- touch investment model
- Mary Ellen Iskenderian of Women’s World Banking noted that women were seen as disinterested in mobile money technology, but actually used it more than men once they were onboarded. Research showed that many women weren’t actually onboarding because doing so required handing their mobile device over to a man to get registered. Hiring female agents to enroll women boosted numbers significantl
In each of these cases, understanding members of the target population for your product or service potentially changes your approach quite a bit. User research matters.
It’s all about systems. Just like any other area of human behavior, you can’t really understand what people are doing until you understand the system in which they’re doing it. One example comes from Justin Wolfers, who finds a positive correlation between wealth and happiness everywhere in the world except the United States. But digging into those correlations reveals unique patterns of wealth and social competition in the US that may influence our pursuit of money. Or, Diana Farrell of JP Morgan Chase Institute showed data about the criticality of local commerce for economic well-being in an area. Local commerce, it turns out, is sensitive to internet commerce, so local businesses do more poorly in areas where people do a lot of online shopping. As you zoom out on that dynamic, you can imagine the role of other parts of the system such as transit, neighborhood walkability, and so forth. I predict that experience design is going to be a valuable tool for the growing behavioral finance field.
Behavior change for finance is still very new. As a psychologist, I appreciated the additional insight into economics and finance that the speakers provided. Through that same lens, I also saw countless opportunities to approach financial well-being differently by applying what we know about human motivation, engagement, and purpose alongside the behavioral economic approaches popular today.
Given that this area of work is relatively unknown territory, and heeding the warning that we have not used data wisely in the past, I hope that new efforts to apply behavior change theory to financial behavior includes a strong dash of research mindedness. Undoubtedly we will try many approaches that fail, or need revision. A researcher mindset can help us sift through our attempts and more quickly craft a winning approach.
And finally, I took Diana Farrell’s words very seriously when an audience member asked about the risks of making financial data more available for research. She acknowledged that there are always bad actors who want to use sensitive data for nefarious purposes. But then Farrell added that we have a responsibility to nonetheless try to use the data to do good in the world. That means rigorous data privacy standards, thoughtful use of analytics and choice of reporting, and most importantly, a clear purpose in applying our knowledge to help others achieve well-being.