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>> Hello, everyone. Thank you for joining us today for our webinar on Behavior Economics
101. My name is Michael Roush, and I'm the manager of financial empowerment and innovation
at the National Disability Institute. Today, I am joined by Wynne Lum, philanthropy manager
at Bank of America; Nicole Truog, associate director, the Center for Financial Security
at the University of Wisconsin Madison; and Anya Samak, who is the assistant professor
at the University of Wisconsin Madison. Before we get started with today's webinar, we do
have some housekeeping tips that we need to go over. My colleague, Nakia Matthews is going
to cover that information. >> Good afternoon, everybody. The audio for
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that the materials will be put on the NDI website. If you experience any technical difficulties
during the webinar, please use the chat box to send me a message, Nakia Matthews. Or you
may e-mail me at nmatthews@ndi-inc.org. >> Great. Thank you, Nakia. Today's webinar
is our second in a three-part series that we are doing with support from Bank of America.
Our first webinar was introducing us to financial capabilities and key concepts and strategies
surrounding financial capability. Today's webinar is to introduce us to Behavior Economics.
What is it? What is the impact of Behavior Economics? Our guests today will help us understand
this topic. We are thankful for our friends from the University of Wisconsin, the Center
for Financial Security, for partnering with us today on this webinar. Please note that
today's webinar is not disability specific as we are exploring this topic together. And
then together we will ponder how Behavior Economics applies to the work that we are
doing together to advance the economic self-sufficiency for persons with disabilities. Our objective
for today's webinar are to define Behavior Economics, understand key components and look
at strategies to use as we work to create positive financial habits for clients we serve.
I would like to thank our sponsor of today's webinar, Bank of A merica, for their support
of expanding the financial capability of persons with disabilities. I would also like to thank
Bank of America for choosing the National Disability Institute to be one of the nonprofit
organizations highlighted on Bank of America's Times Square billboard this weekend and the
weekend of June 1st. If you are in the New York City area and can make it down to times
square, please do and take a picture in front of the billboard. When our logo comes up.
And send it to us. We'd love to highlight our partners with the Bank of America billboard
and NDI logo displayed and we're very honored for this opportunity and we thank Bank of
America for highlighting the National Disability Institute. For those of you that are new to
the National Disability Institute, before we turn it over to our presenters, I would
like to share with you a little bit of information. The National Disability Institute is a national
nonprofit organization dedicated to building a better economic future for Americans with
disabilities. We are the first national organization committed exclusively to championing economic
empowering -- empowerment, and financial stability for all persons across the full spectrum of
disabilities. National Disability Institute affect change through public education, training,
technical assistance, and policy development to help the one in three Americans with disabilities
living in poverty take steps towards brighter financial futures. To learn more about the
National Disability Institute, go to RealEconomicImpact.org. At this time, I would like to turn it over
to our friends at Bank of America. And we have Wynne Lum, who is the fanatical the -- the
philanthropy manager. Wynne, have you've been able to join us? -- have you've been able
to join u s? -- have you been able? Wynne will be joining us in just a minute. Until
he does join us, Nicole, can I turn it over to you?
>> Yes. Can you hear me okay? >> Perfect. Thanks, Nicole.
>> No problem. I'm delighted to participate today. I wanted to take a moment to say a
few words about the Center for Financial Security -- financial security. We are and applied
research Center and our research really focuses on working to build financial capabilities
for families and individuals over the life course. We do this through research that looks
at the measurement of financial capabilities, targeting interventions to populations at
risk, and also testing strategies and products and services. And so I couldn't leave you
today without a little plug for the center and have provided some resources here. I hope
you'll take a look at our website where we have a lot of our research published and also
policy briefs that are two to three page snapshots of our research. And all of our research,
we couldn't do it without our affiliates. And Anya is one of 50 plus affiliates who
are researchers across the country and across the campus working to look at financial capabilities.
If you're interested in learning more about financial security over the life course, we
do have an online conference coming up that's the pathways 2013 link. So thank you to Michael
and his team. I look forward to hearing more from Anya.
>> Great. Thank you, Nicole. And thank you for joining us today and for connecting us
with Anya. I think we might have Wynne back on the line, before we turn it over to our
main presenter, Wynne will be joining us momentarily. Nakia, I sent you the number. One piece I'd
like to share with you before Wynne joins us is that we have a partnership with Bank
of America's disability -- Disability Advocacy Network. And we are partnering with members
of the Bank of America team to increase awareness on financial wellness for persons with disabilities
through two opportunities. We have the financial education training as well as disability awareness
training for VITA volunteers, tax and asset building coalitions, debt management partners,
IDA and financial education providers. If you are interested in being connected with
a representative from Bank of America through the Disability Advocacy Network, please send
me an e-mail, Michael Roush, at mroush@ndi-inc.org. And we will be able to connect you to these
volunteer opportunities within your area. And so now what I'd like to do is I think
we have Wynne Lum on the l ine. So, Wynne, I'll turn it over to y ou.
>> Michael, thank you very much. Thank you for talking about the Disability Advocacy
Network at Bank of America. You mentioned earlier the admission -- the mission for the
National Disability Institute. Your mission is the reason why we are pleased to partner
with you and your organization, to help consumers be better able managing their finances. And
you had mentioned the times square recognition -- we were recognizing a handful of our have
-- partners and the wonderful work they do. Thank you for doing the work that you are
doing. This is a great time to be part of this conversation and this learning session
we're having. I'm in between frazzled -- so this is a great day you picked for this conversation.
When I mean I'm in between, we just finished with Mother's Day. And I was just stressed
out on what to get and the gifts I had to buy. And now were going from Mother's Day
to Father's Day to graduation, prom and everything else we have to do, not to mention necessities
that we all have. So how do you pay for all that? What used decide to get? What's going
to make mom and dad happy? What's going to make the graduate happy? And then do -- cannot
even afford to do it? I don't have to worry about affordability, do I? The marketers are
telling me that I can pay with easy pay, I can delay away, installment, I can pay with
other people's money. And so all of this is stressing me out because we all know that
impulsive buying can lead to some bad habits. And we need to be more thoughtful, we need
to be more deliberate, we need to be able to help ourselves manage our finances. That's
one of the reasons I'm interested in the work that the National Disability Institute is
doing but also the work that's being done by the University of Wisconsin Center for
financial security. They are some of the leading pioneers and experts and smart people doing
this work under the leadership of Dr. Michael Collins and Nicole Truog, who we're going
to hear from today, and Anya Samak in all the work they're doing to help us achieve
financial security. So we at Bank of America believe that consumers should be more thoughtful
and should be able to help themselves, because better consumers make better customers for
us but they also help relieve the stress so that we're not all frazzled with understanding
how to manage our finances. Michael, I'm interested in learning from the panelists today and what
they're doing. Thank you for letting us be a part of this.
>> Great. Thank you, Wynne. We appreciate you being on the call today. So now is the
main part of our webinar presentation today. And we're really excited to bring this topic
to you all. It's a topic that we've been exploring and looking at as we've traveled across the
country. Partners from both the asset building community, financial services as well as the
disability community have said to our team, what is Behavior Economics? What does it include?
Please bring us some information on it. And so when we reached out to the University of
Wisconsin, they connected us with Anya Samak, who is going to share some great information
with us today. She's been studying Behavior Economics. And we're delighted to have Dr.
Samak join us today. So with that, Anya, I'm going to turn it over to you.
>> Great. Hopefully everyone can hear me. >> Sounds great.
>> Yes? Good. My name is Anya Samak. I've been a professor at the University of Wisconsin
Madison and Center for Financial Security the past year. Before that, I was doing behavioral
economics research at the University of Chicago. And I received my PhD in experimental behavioral
economics from Purdue University. So I've been working on behavioral Econ for quite
a while and also mostly working on general behavioral principles that can be shared across
many domains. Not just thinking about why people choose to save versus spend or how
people to -- choose to allocate their money and what behavioral biases exist in that decision
but also very related topics such as, why do people choose to exercise or not? Why do
they choose to eat healthy or not? How do people decide about philanthropic giving and
so on? Today I'm going to be more general and you'll learn a little bit about the different
main principles in behavioral economics and how they can be applied to contact. So when
I talk today, I'm going to break the presentation up into three components. First, I'm going
to tell you what but it -- Haverhill economics is. As Michael said, behavioral Econ 101.
Then I'm going to tell you a little bit about how economists use experiments to study behavior.
Finally I'll give you some lessons on how insights from behavioral economics can be
applied in real settings and give you some examples of studies that have done this. So
before we get started I'm going to tell you about economics. When a lot of people think
about economics or if I meet someone at a party and tell them that I'm an economist,
people usually assume that when I'm interested in is studying money. How do people decide
to spend their money? What does the GDP look like? And that is macroeconomic q uestions.
Really, as economists, we think about any decision being an economic one, because microeconomics
is really the study of how individuals or firms make decisions to allocate limited resources.
Limited resources could be money but it also could be time. You could think about choosing
whether to buy a TV or invest that money in a retirement account as an economic decision.
You could also think about choosing whether to spend time watching TV or choosing to spend
that time exercising as an economic decision, because you're allocating limited resources.
As economists, we have two main components of a decision. The first component is the
a c onstraint. That tells us what the individual can do. It gives us the amount of money they
have to spend, gives us the hours in the day that are available to allocate across activities.
The second component is p references. That tells us what the individual wants to do.
In general, we assume that being jewel -- the individual's objective is to maximize satisfaction,
whether they receive satisfaction from activities or receive satisfaction from consumption g
oods. That in a nutshell how micro economists think about decision-making. So let's start,
what is behavioral economics? With one anecdote. Suppose we have George, whose choosing whether
to invest in a 401(k) plan at work. This slide tells you what we would typically believe
George would do. As economists, this is what we believe George will do. As policymakers,
we might also believe this is what he would do. We give George some information about
the 401(k). Give him that information under the assumption that he's going to carefully
consider all of the information that's given to him. And then he's going to use all this
information to maximize his satisfaction over his lifetime. Is going to know exactly what
he's getting into and he's going to think about how he feels today, how much money he
needs for consumption today, and how much money he will need for consumption at retirement.
We're also going to assume that George is doing this in a bubble. He's ignoring what
his friends are doing, ignoring what others are doing, he's focusing only on the information
that's given to him. Now, here's the behavioral Econ of what really happens. What really happens
is that George doesn't have time or processing capability to understand fully the information
that we give him. He may glance at some of the information that is given to him, but
he's not going to have the full information. Even if the full information is in front of
him, he's not going to be fully processing that information. Second, he is going to try
to maximize his satisfaction over his lifetime but then he might put it off until later or
he might not very easily anticipate his future satisfaction or understand what his future
self will need at r etirement. He's also not in a bubble when he's making this decision.
He does all this after checking what his friends are doing, what his colleagues are doing,
what's on TV and everything else around him is going to have an influence on his decision.
Moreover, because he's only glanced at his information, the information about what his
friends are doing might even be more of an influencing factor than if he had fully processed
that information. So this illustrates what I like to think of as the three principles
of bounded nets, that people are bounded in their ability to make their decisions -- principles
of boundedness. There are behavioral biases that prevent people doing what economists
believe is their objective, to maximize their overall lifetime satisfaction. The first one
is that George carefully considers all information. Likely, that doesn't really happen. What likely
happened is that George falls prey to what's called bounded rationality. Processing information
is costly from a time, effort perspective, and they can be common biases to how information
is received, so probability information is very difficult to process. Information that
is far in the future, difficult to comprehend and apply to your own situation now. The second
one is George maximizing satisfaction over his lifetime. What really happens is that
people have bounded willpower. That's another way of saying that they discount the future.
So they put off doing things they don't like to do, but they believe that they'll get to
it later. And finally, George ignoring what his friends are doing. In fact, we know that
people care about others. They make decisions with the impact of their behavior on others
in m ind. And they also use cues from the environment, especially cues from advisers,
to make those decisions. And these three principles are what we can think of as the psychological
underpinnings of behavioral economics. The behavioral economist take a lot insights from
the psychology field to try to understand what it is about the brain that causes these
biases. For bounded rationality we know that the brain is limited in its capacity to process
information. So we're not all calculators that can immediately process spreadsheet of
information. It takes a lot of time to process this information. When information is difficult
and complex, people often use rules of thumb. So one rule of thumb could be I'm just going
to look at the very first asset on that list of assets that I could contribute to and that's
the one I'm going to choose. These kinds of rules of thumb can lead to a few problems.
It can lead to overload of information if there's too much information, I may not make
a choice at all. It may lead me to incorrectly understand the probability of positive and
negative outcomes, especially for the financial a ssets. The next psychological underpinning
is bounded willpower. The bounded willpower is another way of saying time preferences.
People have different preferences for money today versus money in the future. People often
lack self-control. So as we were talking about impulsive buying, we may buy something today
if the consequences of that choice do not arrive until later in the future, for example
in a few months when the credit card bill is due. Bounded willpower makes it so we may
not be doing things that are good for us even though we know that those things are good
for us. Finally, bounded selfishness is the last psychological underpinning I want to
highlight. In general, people like to help others. They use cues from others to understand
the cost and benefits of different decisions and we fall prey to marketing as well. We
also care about people and their own groups succeeding. We may spend money on things that
help people in our in groups. So behavioral economics is economics but takes it a step further. We use concept
from psychology to investigate how social cognitive and emotional factors motivate decision-making.
Whereas before when we were just micro economists, we made simple assumptions like, George prefers
$100 to $50. $100 is most likely to give him a higher satisfaction than $50. But that might
not always be true. For example, people will prefer sometimes $50 to $100 if they can get
a $50 now but I have to wait a year to get the 100. People are impatient. The other one
that could happen is you could prefer 50 to 100 if getting 100 requires filling out a
form. That's why mail-in rebates tends to be so popular, people believe that they're
going to believe that they're going to fillable form, form, but they never get around to it.
Filling out the form is costly, it takes time and processing power to remember that the
form needs to be filled out. You prefer 50 to 100 unless getting 50 means that your financial
advisor is less well-off. So not only do we care about how people in our in group are
doing, our family and friends, we might also feel that -- feel bad about going against
a financial adviser's advice if that means that the advisor will be less well-off. The
next question is, why do we study behavior? We are interested in setting behavior for
a few reasons. The first, we're interested in describing what people actually do and
why they do it. Second and more importantly we want to recommend what individual route
to do. And what society ought to do. So what kinds of interventions or policies should
be in place to help individuals make better financial choices or make better health-related
choices and so on? In order to recommend i nterventions, we need something very important
which is cause and effect. In the example here, we believe that the Apple is the cause
which is causing the surgeon guy to fall backwards. But we need to be sure that it really is the
Apple that's having this effect before we can recommend that apples should not be allowed
at the hospital. Perhaps this guy just had a cold and was sneezing and the Apple happened
to hit him at the same time. We need to be very careful to disentangle the effects of
these two things because otherwise, we are -- removing the Apple would not have the effect
we expected. Studying cause and effect relationships can help us clearly point out which interventions
are going to cause certain behaviors to occur or not occur. And that brings us to my next
point, which is how do economists study behavior? When we study behavior, what we care about
most is the cause and effect question. I'm going to give an example of a case study on
financial education. We'll talk a little bit about what it means to try to disentangle
the causes and effects. So suppose that we are studying the ability of associates who
work at a firm to make better choices about how they manage their finances. Does -- to
that extent we as a -- advertise a new educational program, grow your wealth. And we invite 5000
qualified associates at the firm to join the program. 2000 of them are interested in learning
to save money. They decide to participate. We invite all 2000 to join. They all do very
well in the program. At the end of the study, we make the following comparison: we compare
the group who had participated, the 2000, with the group who hasn't participated, the
remaining 3000 we invited but did not join. We find that the 2000 have clearly done better.
They've saved more money, they've decreased their loans and so on. So the question is,
is the program a success? By most measures, it seems like it is. So what really happened?
Do one thing that happened is we had what economists call selection bias. The selection
bias caused our results to be overstated. So we have the guy on the left who joined
the program because he wanted to start saving money. He may have chosen to start saving
money anyway, but the program helped him. He's representing those 2000 who chose to
join the program. We have the guy on the right, who didn't join the program, because he didn't
care about saving money and he'd rather buy a flat-panel LCD T V. So this guy is very
different from the first guy. That is selection bias, the types of people who join the program
were very different from the types of people who didn't. And now we can't find a cause
and effect relationship. We don't know if it was the program or the types of people
who joined it who caused the effect, because we compared a bunch of people who are like
the guy who is watering his plants to the guy who is holding up the no sign. We know
for sure that the no guy is not going to be saving money, but we're not clear whether
the guy watering the plant would have saved money anyway or not. That causes us to overstate
our effect, because the guy who joined the program also has the m otivation, the intrinsic
motivation, to save from the beginning. The problem with this is then if we start recommending
the program to others, we often recommend it by saying that any person who joins the
program will be able to save. That's not entirely accurate, because we have no data on the guy
who didn't want to join the program and whether him joining the program would get into save
or not. So one way that economists try to get the cause and effect relationship is to
do what's called a randomized Field experiment or RCT, randomized control trial is what it's
called in medicine. The way we would go about this is slightly different. In the same scenario,
suppose we have 2000 people who chose to participate in the program. And these 2000 people were
located in five different cities. After the associates expressed their interest to participate,
we select the random subset, suppose we select cities A and B. Offer grow your wealth as
a pilot just to those programs. We then compare all those who wanted to participate in cities
A and B with those who wanted to participate but did not get the opportunity in C D and
E. What we've done there is remove the selection bias. So we know that it was the program and
not the people that caused the effect. I see we've got a question which is that we don't
know if anyone's income is sufficient to allow them to a save anything. It's a very good
question. And I'm using this just as I hypothetical example a program we could use. You could
imagine that the 2000 who chose to participate, if we compare the A and B guys to the other
guys, we should have the same proportion with different incomes in both groups. So we break
those people into two groups and we have what's called a control group and a treatment g roup.
We control who gets offered the intervention. The control group is the group for comparisons.
They wanted to participate but were not able to. The treatment group is the group of interest.
They wanted to participate and were able to. We expect that because we randomly put people
into groups. The same proportion of people with low income but both in treatment and
control. And the same proportion of people with high income in treatment and control.
So in that way, we could actually get people's income at baseline and we could compare across
to look at how the different levels of income are affected by the intervention. So that
was a good question. Now, the next question of course i s, what about the nonparticipants?
We've got these 2000 to participate -- 3000 didn't participate. Is there anything we can
do to try to figure out whether we can bring programs to these nonparticipants? We can't
force people to participate in a program. But we could use different behavioral interventions
to try to get them to join the program. One such example is going to be incentives. I'll
talk about that in a bit. So how would we get more participants in this study? We anticipate
that the guy who did not want to join the study may not want to join it for a few behavioral
reasons. One of those is going to be that the consequences of not saving money are far
in the future. He's not thinking about that right now. He would rather make a decision
to have a benefit now such as buying a TV or any other consumption good, and he wants
to save later. What we know from bounded willpower is that he may actually believe that he will
save later. So he believes that he is maximizing his satisfaction over his lifetime, but he
cares more about the present than the future. One way that we could incentivize this guy
to participate is to bring an incentive now to motivate behavior. Very good examples of
this would be if every time he put money into his savings account, he receives some kind
of coupon or voucher for recognition on the company website showing that he's a good participant
in the program. The other way to do it is to include a way for this guy to commit to
joining the program l ater. Perhaps he could commit to joining the program in six months
from now, which he's likely to do because he does believe that he will save money later,
he just doesn't have the willpower to save money today. Finally, we could use social
feedback, we could let him know about the social norms and about how many other people
have joined the program. And their success. Next, I'm going to talk about how insights
from behavioral economics can be applied. This is where I'm going to bring up some real
research examples. This guy on the left is pressing the help button. And the reason is
that we do think that people want to make choices that are optimal for them but the
problem and challenge is that they must overcome many behavioral biases. The ones we've discussed
today are bounded rationality, bounded willpower and bounded selfishness. These are problems
that people have that make it difficult, barriers for them to actually making the decision that's
going to be optimal for them. I'm going to talk about five different lessons of behavioral
interventions that can help to change behavior for the better. The first one I'll talk about
is the power of default. Then I'll talk about the cost of information. And then I'll talk
about incentives for today. I'll talk about demanding a commitment. And I'll talk about
some social strategies. And I'm not using just financial examples here, because what
we believe is that these behavioral principles can be shared across many domains including
financial decision-making, health-related decision-making, choosing to donate to a philanthropic
fund and so on. We'll start with the first one. About the power of default. In any decisions
that you could possibly make, your inaction in that decision triggers some default results.
So if you were at a company and you don't sign up for health insurance plan by the deadline
you are given, the default is no health insurance for the year. If you are at a company that
has an option for -- 401(k) plan, the default for not opting in to that plan is no 401(k)
plan. You do not sign up to be an organ donor, the default is typically you're not an organ
donor. What we know from behavioral economics is that if individuals put off difficult decisions
to the future, the default will be the most likely outcome. They procrastinate and procrastinate,
making the decision until finally the deadline has passed and then nudged into the default
state. Suppose that we change the default. We change no other policy accept to say, now
for the 401(k), the default is going to be automatic enrollment. If you don't touch the
paperwork, and you do nothing, you are automatically in the 401(k). If changing the default changes
behavior, we call this a nudge. We're not requiring people to join a 401(k). We're simply
changing the way you join. Now, rather than having to joined by doing paperwork, you have
to choose not to join by doing the same paperwork. The evidence that I have for lesson one comes
from a paper by David and co-authors from 2004. They conducted a field experiment with
an employer in which they changed over time the way that the 401(k) enrollment worked
-- by David Laibson. At first the employer had an opt in policy in which the worker can
select and then choose an amount to contribute. And then later, the employer had an opt out
policy with some default rate of 1% or 2% of the salary. The opt out case, the worker
was defaulted into accepting a 401(k) participation and the rate, or had to act to opt out. What
they found is that this change in default significantly increased enrollment. In fact,
when offered the default rate, many people were defaulted into that rate. If you look
at the small graph on the left, you see here the fraction of participants -- of employees
in the 401(k) plan, the Orange line shows the people hired during auto enrollment. The
amount is 80% of people who are enrolled in the 401(k) versus just 20% of people who are
hired before auto enrollment. Even after 48 months of tenure at the company we see that
the green lines below the Orange line showing that being hired at auto enrollment does not
cause people to opt out over time either. On the right, you can see here too the distribution
of contribution rates where the orange bars represent being hired during auto enrollment
with the default rate of 2%. Most people say that the default rate -- stayed at the default
rate of 2% regardless of their income. We might expect people with higher income to
choose higher contribution rates. And people with lower income to choose lower contribution
rates. That did not really happen in this particular study. The lesson here is that
default rates are particularly strong ways to get people to change their behavior. And
people don't even know that their behavior is being changed. They must be used carefully,
because even individuals with very low income who may not need to save in a 401(k) at all
and should instead be paying off their credit card debt are also being awful enrolled in
the 401(k). So this policy, which seems benign, actually caused a big behavior change. The
next lesson is that information has a cost. We always think about providing the consumer
with as much information as possible in order to make sure that his decision is more informed.
However, what we know from bounded rationality is that processing information is difficult
and individuals often rely on -- we can actually simplify information. Some of my work in the
financial literacy domain is on using graphical representation, which can be more effective
than textbased information to get people to understand financial concepts. More information
creates overload and is not always better. If you have too many, for example options,
you could cause worse outcomes by having people do more rules of thumb processing and more
processing of full information. The type of work that I do is actually called visual analytics.
So I use interactive visual tools that people can interact with to try to see things like
financial portfolio selection and risk diversification visually rather than just textually to try
to see how credit card debt will pile up in a visual form rather than just knowing that
APR for example. We find in lab experiments that visual analytics can improve confidence,
reduce decision time and actually result in higher quality choices when information sets
are complex. Lesson three is now incentives. So we know that bounded willpower makes it
difficult to see the benefits of an action that is good for you. Exercising and eating
well will improve my health in the long run. But I care about less -- care less about the
long run, more about the short run. If I have an incentive today to do something that's
good for me in the future, that actually changes my decision problem. It creates an immediate
benefit for my actions. Now I'm considering the cost and benefit of the action with the
benefit that I have in the present. Whether it's a couple dollars every time I go to the
gym, whether it is recognition from a friend that I did well, incentives in the present
are very important. The example I have here is a study that myself and my colleague, John
list, ran in the lunchroom. We actually see that over 40% of the content is thrown away
by kids. Which is a high rate of waste. We know kids are at the highest BMI ever and
nutrition education has had limited effectiveness and is costly. What we did in this study is
we looked at the effect of providing small gifts to children if they choose a healthy
food. We give them a choice of a cookie or fruit and told them they could only choose
one. And we randomly put different school lunch rooms in two different treatments. We
had a control group in which they just made a choice, a treatment group where they received
a small toy if they chose a fruit, and the small toys were on the line of $0.10 each
and we had a treatment group where they received some education and also made a choice, the
education was about a five minute message about the food period. This is the results
we have. Period one, which is before we did the intervention and two which is after. We
can see that in period one, about 20% of kids were choosing the fruit and 80% were choosing
c ookies. Cookies are the less healthy but higher benefit in the present choice. Now
we can see what happens when we introduce education. It actually had no significant
effect and almost a negative effect on the proportion of kids that are choosing the fruit.
Finally, what we find is a very powerful effect of incentives. The fruit choice increased
to 80% with only 20% choosing cookies when we introduced just a small toy. These are
three different incentive treatments that we ran. This type of radically effective incentive
has also been documented in other work including things like getting children to study for
their exams, getting adults to attend the gym regularly and so on. And is now being
tested for different types of financial interventions as well. Finally, we have commitment devices.
Individuals want to do better but the bounded willpower prevents them from doing better
in the present. So a commitment device is a way to assure that you follow through with
a plan. A good example of this is CDs or restrictions on withdrawals in the financial services.
Another good example is gym memberships. And finally if you see people putting their credit
cards in the freezer, that's a commitment not to take that credit card out even when
you have bounded willpower to do that. So there was a study by Dellavigna and Malmendier
in the last 10 years or so where they looked at analyzing data from gym m emberships. The
idea is that if people are maximizing their satisfaction, they should spend only as much
money as they need in order to go to the gym. What these researchers actually find is that
people pay more if they get a gym membership than if they pay per visit. And this is evidence
for the fact that people value commitment devices. If the average cost per visit is
$19 and the drop in rate is $10, the people paying $19 are the ones who have the annual
monthly membership. People are willing to pay up to $600 in this study for having this
commitment device to make them go to the gym. Finally, social strategies are very effective.
We can use social information and social cues to help people comply with desirable behaviors.
For example, financial coaching has been very effective, primarily because you are held
accountable to another person -- less so because of the financial information that they may
provide you. If you learn you're standing in a social group, so if you learn you are
being less environmentally friendly than others in your neighborhood, you may be more likely
to purchase environmentally friendly lightbulbs. That's a study that one of my colleagues has
done. Learning about what the social norms are helps people to conform to those norms
especially if those norms are things like weight loss and quitting programs, quitting
smoking. And receiving a signal based on what a role model is doing. Finally, tidying incentives,
the now incentives I talked about two group performance seems to have a big effect because
if I'm driving down the group, I feel more like I need to be proactive in making sure
that the group succeeds. Some evidence for this social strategy has been found in giving
to charities. Seed grants are really effective at getting others to donate. Social information
is very effective at getting people to donate to charity. Financial coaching, which I already
said, weight loss programs tend to be effective also because of the accountability component
and so on. And actually, that completes the discussion. We can open it up for questions.
>> This was -- thank you for the information. This was really valuable information. We do
have several questions. I would like to remind everyone that if you have additional questions,
you can go to the question and answer box on the lower right-hand corner of your screen
and ask the questions. So I will start reading off the questions. So far the majority of
these questions seems is going to you. Do you have examples or a resource that we can
go to, to share to provide insight on the graphical representations that you talked
about? >> Actually, yes. So I can send a link out
after the meeting. I have a book chapter on graphical representation but I don't have
that publicly available. I can put together some information on my website.
>> Okay. Great. We will definitely forward out your website to others. The next question
is, how do we choose the right incentives to offer for financial education or financial
coaching program? >> So that's a pretty broad question. I think
you'd want to try to understand better your population and who you're working with and
actually, I have many colleagues who study this question in particular, what's the right
incentive to use? Whether the incentives works just in the short term or whether their habit
formation effect in the long-term? We typically use randomized field experiments to try to
answer these questions, so we look at some possible incentives that we think may work
and then we randomize participants who receive incentives to study the value of each one.
If you did not have the ability to run a field experiment, you might want to think about
doing some surveys to learn about what incentives are sufficient for people to come. It's often
not going to be about monetary incentives. I think monetary incentives is the entire
transaction is viewed as a market transaction rather than intrinsically motivated transaction
so if I'm being paid to volunteer, that's very different from volunteering but if I'm
receiving a pen for volunteering, I may still feel I'm volunteering. Monetary incentives
can be explored more. >> Okay. Great. The next question that we
have here is, we have an idea a program, individual development account program. Every person
in the program has to use free tax preparation services. Should we offer an additional incentive
on top of this? [Indiscernible] placed on how many incentives possibly should we be giving to
an individual? Potentially, the free tax preparation services would be an incentive and hopefully
a behavior that they would keep afterwards, but should there be more than one incentive?
>> I think that would depend on the proportion of people that are using the service. If you
noticed that not many people are using the service, there may be a few barriers. So you
might want to think about if there's a barrier to calling to set up the appointment, maybe
you want to make it easier for them to get into the network and have reminders if someone
is calling them again and again to remind them to come i n. That can often be an effective
way to get people to show up, if they have more accountability. I think it's probably
-- if you are not finding the free tax preparation is a sufficient incentive, it's because they
don't receive the benefits right away. Do they receive their tax return right away after
they do the tax preparation? >> Right. So they would not.
>> Right. So it's possible that just that length of time is causing them not to choose
to follow through. I think with some low income populations especially, they have so many
other stressors on a day-to-day basis that for us, we might think of course, free tax
preparation is a great benefit. I'll fit it into my schedule for low income population,
might not even be on the radar until it's too late to receive that. So in that sense,
I think thinking about using a commitment device and reminder systems might work better
than an incentive and even an incentive as simple as a gift card they can use right away
might be helpful. >> Okay. Great. Lots of questions coming in
here. I know we only have five minutes left, but we might go a few minutes over if people
are willing to stay on just for a few more minutes because we have quite a few questions
coming in. Which is great. So I'm reading -- so can someone talk more about how people are
willing to pay for a commitment device? To make a, that question came from you. Do you
have anything else you can add to that question? >> No. That was all that I got.
>> Okay. Anya, are you able to answer that? >> In general, the reason I said people are
willing to pay for a commitment device is because of t he's time preferences have, which
is that we put off doing things that we don't like to do, to the future, but we believe
that in the future, we will do the things that we want to do. So having a commitment
device where I say I'm going to save but I'm going to save more tomorrow rather than today
can be an effective way to get people involved in saving without requiring them to save right
away. And similarly it can get people to start attending the gym without requiring them to
go right away, because coming in and doing a gym membership is less intimidating than
starting to go to the gym every single day. So what we find is that people want commitment
devices and they're willing to pay for them in the sense that they may be willing to take
a lower interest rate on a financial vehicle that in the long term they may have less liquidity
on Van higher interest rate on one where they have more liquidity. So if they recognize
that they have a problem with bounded willpower, they may be more likely to want to pay for
that commitment device to help themselves. On the other hand, we might not want people
to pay for the commitment device but get people to say.
>> Great. The next question is, is there one key strategy that your research highlights
as the most important in changing the behavior of individuals seeking to improve their financial
capability? >> I think that's an open question. What we've
really been trying to do is learn about whether it's incentives or social information or reminders
or all three of these things that are going to have the biggest impact at improving financial
behavior. >> All right. How do you know when a problem
is actually behavioral in nature? In many cases, problems that seem behavioral are actually
more structural. Do you have any guidance or baseline questions a program should ask
itself to understand this? >> Well, I think the structure of the program
may be what's causing the behavior that you observe. So if you have a program in which
it's very time costly for people to come in and register for it, requires a lot of paperwork,
there's not a lot of face to face interaction or social pressure to continue with the program,
then you would have behaviors that correspond to that, so people that are less likely to
join because of the barrier of taking a lot of paperwork, people who choose not to show
up if they're not reminded to come by someone else, that's a real person, and these sorts
of things. You really want to think about kind of, what are the behavioral barriers?
And look at the bounded willpower and bounded rationality especially to see if the way the
program is set up is causing people to act in line with those behavioral biases.
>> Great. What are some ways of helping individuals overcome the influence of family and friends
who don't have particularly good financial practices? So what are some of the ways in
helping individuals overcome the influence of others?
>> I think just -- I think that's really hard. We know very little about especially how behavior
is formed across the lifecycle. So when kids are younger and they learn from their parents
to behave in a certain way, how we can overcome those effects later in life -- those are all
open questions at this point. And you really want to think about whether we can have better
role models for people or whether we can incentivize them in some way to start forming new habits.
>> All right. Great. And do you have ideas for how to motivate financially stressed individuals
to enroll in a financial literacy class? I guess that kind of gets back to looking at
the best incentives. >> So we actually run a program in the South
side of Chicago, which is for financially stressed families but it's a parenting class.
And we offer incentives such as free child care for the children. And we also focus a
lot on peer to peer interactions. Having people in groups within the parenting class but essentially
having people in a group where once they arrive, there's three other people that are in their
group that they check in with and me knowing that you're going to be there and I'm choosing
not to come may be more likely for me to attend, so social pressure types of ways could be
useful. And accountability among the three people in that group. These types of things
have worked very well for weight watchers, for example, where you know that you have
to be accountable to others in your peer group but I think could also be effective for financial
literacy classes. >> All right. Great. Thank you. I know we've
come up to two minutes after 4:00. And there are several more questions that have come
in. And we have run out of time. So what I'd like to do with these additional questions
is I will send them over to the Center for Financial Security, to Anya and Nicole. And
to Bank of America. And we will answer these questions if that's okay with you, Anya. We
can send them to you and answer them and then we will attach this -- send the responses
out to everybody who registered for the webinar who participated today. So Anya, if you're
in agreement with that, we could go that direction. >> Yeah. That sounds great.
>> Excellent. Well, thank you. I would like to thank everybody for participating on today's
webinar and for asking these great questions. I think that this has been -- out of all the
webinars I've done, this has been one that we've had lots of questions and great feedback
-- so we really appreciate that. And please be sure to complete your evaluation and let
us know other topics you would like to explore or if you would like to explore this topic
even more, then we can host another webinar, possibly on this topic as well and going a
little bit deeper. For additional resources, please visit our website at www.RealEconomicImpact.org.
And also feel free to sign up for our listserv. There's information on your screen on how
to sign up for our listserv as well. A special thank you to Bank of America for their support
of this webinar series and really looking at how do we build the financial capabilities
of persons with disabilities? And understanding different terms and different topics that
we've heard about and really allowing us to ponder these thoughts and see how these apply
to persons with disabilities and really looking at how to build a better economic future.
A special thanks to Wynne Lum for his participation today as well. After the webinar, if you have
any additional questions, please feel free to contact me. My information is there, (727)278-1352
is my phone number and my e-mail address is on the website as well, mroush@ndi-inc.org.
I would like to thank Nicole Truog as well as Dr. Anya Samak, both with the University
of Wisconsin, for being good friends to the National Disability Institute and for providing
information with us today. Please note that our next webinar is June 12 at 3:00 p.m. And
this would be the third part of our series. It is on integrated service delivery. And
we will be hearing best practices of how organizations have brought various pieces when it comes
to financial literacy asset development and integrated them into their existing systems
and programs. So please be sure to join us for that webinar as well. Once again, all
questions, we will have been answered and sent out to everyone that has registered.
I'd like to thank my colleagues, Elizabeth Jennings as well as Nakia Matthews, for their
support of today's webinar. Thank you again for attending, and we look forward to talking
with you in June on our next webinar. Thank you.
>> [event concluded]