Most people wouldn't describe themselves as savvy money managers. Yet we all face the challenge of stretching our paychecks to cover seemingly unpredictable expenses, sometimes with little room for error. For years, the standard way of tackling this problem has been with financial education programs. The thinking was that the main problem was an information gap, and arming people with the knowledge to navigate money matters would close the gap. But while these well-intentioned programs do appear to increase knowledge, they haven't been shown to change behavior – or improve financial outcomes.

The financial health space, made up of people and organizations promoting financial inclusion, has stepped up to this challenge, incorporating a new focus on action into educational programs and prompting people to set goals for the future during their sessions. This is a major step in the right direction. However, setting a goal is not the same thing as achieving it. Many people don't know where to begin, or they drop off somewhere along the way. Behavioral science – the study of how we as humans make decisions and take action in the real world – accounts for this. Using such insights from our predictable human tendencies can inform financial management programs to help members create concrete goals and follow through on them, improving financial health.

We recently put this to the test in the Financial Health Check, a light-touch, behavioral alternative to financial coaching. Supported by the MetLife Foundation and designed by nonprofit behavioral design lab ideas42, the Financial Health Check was offered to credit union members at BECU, the nation's fourth largest credit union, which is based in Washington State. During a one-time, 30 to 60 minute phone-based session, specially trained consultants from BECU helped participants make concrete decisions related to increasing savings and reducing debt. This brief but specialized session helped credit union members save 34% more in the next 12 months than peers who didn't participate. How?

The Financial Health Check appointment itself is a behavioral lever. Most people have a desire to save more – some amount, for something, someday. Participants in the Financial Health Check scheduled an appointment to speak to a trained consultant on the phone, carving out a specific moment for reflection and putting them in the right frame of mind to take action now. At the same time, the live session generated a form of social accountability: Someone is awaiting my call because they want to help me.

Additionally, action is a key theme of the unique design of this program. In the Financial Health Check session, members don't just learn financial management tips or plan to set goals for the future. They take action right away by establishing savings transfers or making debt payments during the live call. Because there's a technology component, consultants can share the member's screen and walk them through the steps needed to automate savings or debt payments so they won't need to do it again the next month – meaning that this one moment can create a domino effect of saving for the future without additional effort. And if they aren't able to complete a step in real time, consultants help members create personalized alerts for following through later.

And while everyone has different financial goals, the Financial Health Check focused on two key financial needs that most people have. In order to reach a long-term personal goal (such as buying a house, paying off a loan or saving for retirement), most people first need to reach a baseline level of financially stability. Reducing high-interest debt and creating emergency savings are foundations of financial health, so members participating in the Financial Health Check are guided toward achieving one of these goals first.

That raises the question of how much to put toward these goals. Setting targets is a critical part of saving money, but abstract goals often remain just that. During the Financial Health Check, members are asked to complete a budgeting and goal-setting exercise before their call, and if they don't, there is space for it to be done during the live call. The consultant then helps them analyze their cash flows to determine the surplus they have to work with. This active process produces a specific number the member is comfortable allocating to savings (or debt repayment) each month, giving them a concrete target amount.

The bottom line is, it simply isn't enough to provide people with more information or prompt them to set distant, abstract goals. Effective programs must be actionable, concrete and designed for the way real people behave in the real world. Behavioral strategies have been used to help people generate and follow through on concrete plans in many other areas, from voting to getting a flu shot. Similar tactics can and should be used for improving financial health.

Credit unions and other financial service providers can easily apply the simple behavioral insights that informed the Financial Health Check to their own programs. A starting place for organizations that want to leverage these insights is to consider their members' perspectives and understand what specific barriers their customers might face when it comes to achieving financial goals. They can also identify the best channels for communicating with members so any program updates reach the people who can benefit from them. Credit unions that can understand, account for and better design for their members' human tendencies will create a win-win – both for members' financial health and organizational success.

Katy Davis is a managing director for ideas42. She can be reached at katy@ideas42.org.

Rachel Van Noord is director of community outreach for BECU. She can be reached at mediacontact@becu.org.

Instant Insights /

Using Behavioral Science in Financial Education

Related Stories

Recommended For You