Financial inclusion can be improved by nudges. We can give a hand to our decision-making.
Yes, people can. You can improve financial inclusion by nudges in a country like Afghanistan, in which only 10% of Afghans have a Bank account to save in. With the help of behavioral economics a savings product has been designed. M-pasandaz (“M-saving” in Dari) automatically and through mobile phones (60% have mobile) collects savings from employees’ salaries.
Also in more developed countries like ours, like Chile , it’s not easy to save, it´s not enough to understand the importance of having access to any savings, including rainy-day emergency funds. There are a number of well-documented reasons, such as the present bias, that can make us spend now and not save for the future. In addition, we can find difficult banking procedures that can lead us to make unsound financial decisions.
The Government should increase the quality of life of citizens by improving, based on scientific principles of human behavior, the way the options are presented on finance, food, education and health.
Dr. Sunstein of Harvard Law School, recognized along with Richard Thaler for their famed book, Nudge, and for being part of the President Barack Obama Administration, published his book in 2016, The Ethics of Influence: Government in the Age of Behavioral Science. His proposal is, and has been, that the laws allow citizens to make their best decisions, of course with desirable social objectives, but without having to force them to do it. That the Government should increase the quality of life of citizens improving, based on scientific principles of human behavior, how the options on finance, food, education and health are presented. The Cass R. Sunstein reflection introduces us to the idea if it is necessary to undertake or improve any nudge actions in financial markets, because of the growing accessibility to the small investor and to their new products and services. In our recent crisis consumer credit and mortgages have been very high. Consumption, doubts in our pension system have in addition not contributed to long-term savings.
How does our financial literacy affect our behavioral economics?
Relevant contributions about the importance of financial education for the economy, developed by Lusardi and Mitchell in studies, warn that we are able to know if family economies are well supported in terms of knowledge and systematic to move in these complex decisions. How does our financial education affect our behavioral economics? And another question: should public policies encourage citizens to make their best decisions, of course with social desirable objective, but without having to force them to do this?
In Spain, for example CNMV and the Bank of Spain have developed a Website that introduces us to learning and concepts such as: saving at different times of our lives, how to invest, financial products and services, an interesting financial survival kit etc. The aim of which is to fill the gap that we have in our financial education. Or like, our dear professor, Jose Antonio Marina says; economics. Without discussions, like “The rabbits and the dogs” from the fable by Thomas Yriarte.
There are studies that have worked on the completeness of financial education, I don’t want to say that financial education is the solution, but that it helps, should we work it quite more, Yes.
We can, also in business, give a hand to our employees to make their best financial decisions by helping planning. For example, we have the great fortune in some companies to have employee benefits plans that help to save for the long term, to give coverage protection and, if applicable to the best available to savings. Ideas42
Further ideas: our friends Shlomo Benartzi and John Beshears, in a recent published article in the Wall Street Journal, propose that people also like to save in accounts with restricted liquidity, this helps with our little will power and not so these financial products lose their attractiveness.
A new proposal: The CEO of PayPal, Dan Schulman, in his delivery to insights of McKinsey of this month of March, tells us that fintech will help democratize financial services, creating opportunities for spending, savings and make contributions to non-profit.
IPA, innovations for poverty action
And finally, for those who you’ve had the strength to get up to this part of the article, one of the more elaborate, best designed and developed proposals is, IPA, innovations for poverty action.
IPA has been developed from discoveries on research into behavioral economics, which include ideas for financial inclusion and for the development of the offer of products and services to promote financial health.
Their goal is to create opportunities for the commitment to savings.
Facing bias that we know well and we can prevent pursue our decisions to save:
- Present bias,
- Lack of self-control,
- Neglect the future,
- Social pressure against savings.
For the design of products and services, the financial suppliers will have to consider the following points:
- Proposals must show the monetary cost or psychological effect of not saving.
- Not there will be that asked commitments too expensive, less can be more.
- Psychological commitments, as tag savings for specific purposes can help people to save more. And it really does work.
Yes you can. In Kenya, in 2013, only labelling savings for health expenses helped families to save significantly; 75% more. And in the Philippines, in 2006, a product with an engagement purpose savings increased annual savings by 82%.
Yes you can. You can improve financial inclusion by nudges.