Select Page

Get Smart About Your Finances

Hint: Behavior Plays Its Part

November 20, 2019


This week’s theme for Canada’s Financial Literacy Month is Be a Smart Financial Consumer. The focus is on educating yourself to your rights and responsibilities as a consumer of financial services and products, and the Financial Consumer Agency of Canada provides a number of educative resources.

 In a world where we are drowning in information, how many of you click through?

We suspect not many.

Perhaps you set the intention to circle back later, but even if you intended to loop back, the likelihood of acting on it is predictably unlikely.

We strongly believe financial literacy is important (but really only a piece of the overall puzzle).

But, it is not easy to become a “Smart Financial Consumer.” 

As humans, our limited attention, our tendency to procrastinate and to stick to the status quo are all frictions that are ingrained in us. Yes, for some, these biases are stronger than for others, but as humans we all exhibit them to some degree.

So what does this mean in the context of becoming a “Smart Financial Consumer”? While we may have the best of intentions to inform oursleves, our actions simply don’t align (and it isn’t always our “fault”).

A lot of the decisions we are forced to make are heavily influenced by the way in which our options are presented to us.

Take organ donation as an example. In countries where the population is asked to opt-in to becoming an organ donor, the percentage of the population who elect to be organ donors is far fewer than in countries where the population has to opt-out of being a donor.

What’s going on here?

By understanding the general human preference to stick with the status quo, policymakers have been able to flip organ donation participation on its head! 

So how does this apply to financial education?

If you did (or do) click through to the Financial Consumer Agency of Canada website, you were (or will be) likely immediately overwhelmed by the choices available to you.

“Great! I’m here, but where do I start? Does this even apply to me?”

You’re not alone if you found yourself quickly stopped in your tracks. 

The choice overload you’re faced with goes a long way towards creating the friction derailing your intention.

So, what can you do to commit to becoming a more informed financial consumer?  

It turns out that while behavior bias may have stopped you in your tracks from clicking through to learn more, just like the organ donation example, we can use the predictable nature of this so-called “irrationality” to help adapt and make a commitment to following through.

Behavioral science has a whole toolkit of things that can be used.

Things like an implementation intention, or an “if-then plan”, can lead to better goal attainment, as well as help in habit and behavior modification. It specifies the when, where and how portions of how you will become a more informed financial consumer.

You can also deploy a Commitment Contract – a voluntary, deliberate and binding agreement between present you and future you. In creating a Commitment Contract, you put your goal in writing, set a deadline, and give yourself additional incentives to achieve it.

We believe in the behavioral science toolkit so much that we’re using it to design a better way for people to overcome any current financial stressors so that they can achieve their desired financial outcomes.