Article

Motivating Change: Behavioral Economics and Financial Health

Tuesday, June 16, 2020

By Heidi Johnson
Director, Financial Health Network

Director Heidi Johnson joined the Financial Health Network team in 2019 to lead our work applying behavioral insights to the design and delivery of financial health products. She comes to our organization from the Consumer Financial Protection Bureau, where she led a behavioral research program and contributed to policy teams focused on overdraft programs, savings, student loans, credit reporting, debt collections, small-dollar credit, and other financial products and services. With expertise in a variety of research methods, Heidi focuses on applied research, translating the insights from rigorous academic studies to real-world settings. She holds a master’s degree in public policy from the Harvard Kennedy School and a bachelor’s degree in sociology from Colgate University.

We held a Q&A with Heidi to introduce her to our EMERGE Live participants: 

Behavioral economics has been getting a lot of buzz. What’s it all about – and what does it have to do with financial health?

Behavioral science helps us understand how people actually make decisions, and to spot some of the behavioral barriers that are built into business as usual. I think of this as a foundational input into designing products that help people with their spending, saving, borrowing, or planning. There’s a growing recognition that behavioral economics provides evidence-driven tools that solve problems in the real world. If you want to motivate, change behavior, and support people’s financial health, you need actionable insights.

Some of the earliest applications of behavioral research to financial health were in the design of employer-based retirement savings programs. For example, features like auto-enrollment or auto-escalation of contributions are pulled straight from research conducted by behavioral scientists. Those changes have increased retirement savings by an estimated $30 billion in less than 15 years. So with that roaring success, behavioral insights have started to make their way into the design of other financial health products as well.

Can behavioral economics help companies respond to the COVID-19 crisis?

Understanding the psychological challenges that customers and employees are facing is more important than ever. We know that a lot of people are financially struggling during this crisis, and figuring out how to support  their financial health effectively is going to require an understanding of those psychological barriers as well as the ability to leverage proven behavioral economics tools. The Financial Health Network has created a consumer guide for managing money in a pandemic that was informed by behavioral research. Companies can use these insights to develop strategies for supporting customers and employees during this difficult time.

What are companies doing right now to apply behavioral insights to financial health?

A lot! It’s exciting to see the wide range of companies that have recognized the opportunities behavioral insights can offer. Specific to financial health, we’ve seen community banks, large credit unions, new fintech companies, and nonprofit service providers all starting to design, deliver, and test innovations that leverage behavioral insights. Many companies are hiring external consultants with this kind of expertise (such as the Financial Health Network), and some companies are even building their own behavioral teams in-house. There’s a huge opportunity for companies to become leaders in this space by integrating behavioral insights into their product development and design.

How has the Financial Health Network been building its behavioral insights work? 

We’ve developed several offerings to apply behavioral insights at various stages of the product development process. Many of our Members are also looping us in to provide behavioral recommendations as they develop new products and services. 

For companies that are taking a new look at their existing product offerings, we can provide a behavioral design review to illuminate opportunities to increase adoption or maximize the benefits of a product. We’ve also been working on some really interesting collaborations to better understand product impacts on financial health. Is the product improving financial health in the ways we expect? We’re designing methods to rigorously test and quantify the impact of products, so that we know what works to improve financial health and can provide companies with hard data on whether their products are working as intended. Knowing what works is a key input in business decisions for companies with a financial health strategy. 

In addition to providing direct consulting services, we’ve been working with several innovative companies dedicated to improving the financial health of their customers through our Financial Health Leaders Lab. The Lab provides behavioral expertise and support for product testing to a select group of companies that are measuring the financial health of their customers or employees. It’s inspiring to see how these companies are able to connect product improvements directly to positive outcomes for their customers. We’re looking forward to sharing the impact of their innovations in a series of reports later this year.

How can companies learn more?

Since we can’t connect in person at EMERGE this year, reach out to me directly. I would love to chat with you about how the Financial Health Network can help you apply behavioral insights to your business.

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