As the focus over the last several decades has been on financial education and literacy, an emerging body of behavioral economics research is illustrating how this approach has failed.
The commonly held belief is that education leads to knowledge, which then leads to action. In fact, a meta-analysis of nearly 200 financial education programs completed by Prof. John Lynch and his colleagues in 2014 found that “financial education interventions explain only 0.1% of the variance in financial behaviors.” Said another way, in the words of the renowned behavioral economist, Dan Ariely, “The evidence is that financial literacy’s effectiveness is close to zero.”
Beyond Behavioral Finance
For the last decade, behavioral economics has been the driving force for plan design changes within the retirement plan industry. A big shift if currently underway as plan advisors and providers transition from a focus on plan design to demonstrating how they can help employees address their underlying money issues.
So if we want to design program that lead to behavior change, so that we can help employees get on track for a successful, dignified retirement, what do we do?
First of all, we know that coaching is perhaps the most effective intervention available to employees. This isn’t just picking up the phone when an employee has a one-off question, but instead having a proven, research-backed program in place to coach them on their top financial goal (and don’t allow them to work on more than one goal at a time).
More importantly, there are five key behavioral strategies to change employees’ financial behavior that nearly every financial wellness program is missing. Find out how emerging financial technology companies are using these strategies to coach employees on making healthier financial decisions.
Join me at the NAPA 401(k) Summit on Monday, March 20 at 10:00 a.m.!
Kristen Berman is Co-founder and Head of Product at Duke University’s Common Cents Lab. Join her for a lively discussion of behavioral economics, including case studies from some of the most innovative financial tech companies that Common Cents has partnered with.
Early bird registration rates expire Friday, Feb. 17 – register today and get the best price for the nation’s retirement plan advisor convention at www.napasummit.org.