Five principles for designing consumer financial products that change financial behaviors.

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Forget Financial Literacy, Design for Advocacy Instead

Teaching financial literacy doesn’t work 
Teaching people about finances may not change their spending or savings behaviors in any meaningful way. Instead, we should advocate for them by applying lessons from behavioral economics to design smart money behaviors directly into the experience flow. 
 
Financial literacy means having the knowledge to make informed decision about money in areas like saving, investing and budgeting. Common sense, and many academics, would say this skillset has the power to improve financial stability for just about everyone.
But what if having more knowledge about financial principles had no impact on one’s financial behaviors? <a href="https://www.financialbuildingblocks.com/assets/The%20Effect%20of%20Financial%20Literacy%20and%20Financial%20Education%20on%20Downstream%20Financial%20Behaviors.pdf" target="_blank" rel="noopener">One Group</a> analyzed 188 prior financial literacy studies and, when controlling for psychological traits, found that financial literacy efforts explain only 0.1 percent of the variance in financial behavior. So, what’s going on here?
People are not rational financial decision makers  
Behavioral economists have long known that people are not rational beings and have trouble making decisions in their own best interests. We as a species have difficulty with self-control. We choose short-term rewards over our long-term goals. Even though we may know better, we still practice irrational financial habits. This lack of reason shows up not only in our finances but also our behaviors around eating, exercise, drug use, relationships—the list goes on.
Advocate by designing choices for the irrational mind 
Let’s imagine we want to increase the likelihood that someone chooses a smart financial option, like contributing to a savings account or paying a bill on time. The following principals taken from lessons in behavioral economics can guide how we design experiences to measurably increase instances of that wise financial option.

Behavioral Economics Lesson: Default Bias. If something is easy to choose or the default option, people tend to choose it.
Design Implication: Design the default choice to ‘opt-in’ users to the smart financial decision, allowing them to opt out as an extra step.
Example: Auto-enrolling employees in a 401K plan is now common practice for the majority of large U.S. companies. <a href="https://money.com/401k-features-employers-can-no-longer-ignore/" target="_blank" rel="noopener">One Study</a> found a 32 percent increase in participation with auto-enrollment and saw 46 percent more participants increase their contributions each year with auto-escalation.

Flip the Default Button

Behavioral Economics Lesson: Design Paralysis. When given too many options, people get overwhelmed and anxious about making the wrong choice—so they choose nothing at all.
Design Implication: Offer a small number of choices, or better yet, make a recommendation.
Example: When deciding on a Medicare plan, seniors are offered a multitude of health coverage combinations to choose from. Learning about Medicare and figuring out the best coverage option is overwhelming for everyone. But a <a href="https://www.medicare.gov/oopc/" target="_blank" rel="noopener">cost calculator tool </a>on Medicare.gov simplifies things by estimating out-of-pocket costs for coverage, essentially making a cost-based recommendation.

Offer Recommendations Over Options

Behavioral Economics Lesson: Availability and Status Quo Biases. People consider information that is most vivid and recent, not what’s most relevant. They also stick to what they’ve always done in the past, no matter the prior result.
Design Implication: Reframing is a technique used in cognitive therapy to help patients see a situation with fresh eyes. In design, we can reframe choices in terms of visual emphasis, interaction flow and language to capture user attention and bump them out of old habits. Present the option right up front in the workflow with a standout visual. Remove up-front education and instead provide guided choice pathways with action-oriented language such as ‘When would you…’, ‘How much would you…’ or ‘Let’s get started with…’.
Example: <a href="https://www.lemonade.com/start/1" target="_blank" rel="noopener">Lemonade</a>, a home and renters insurance provider, reframes insurance package choices by stepping users through a set of easy questions. Their workflow starts with a friendly action-oriented message: ‘Hey! I’m Maya. I’ll get you an awesome price in seconds. Ready to go?’. Users start by just entering their name, a simple way into the process of making a new insurance decision.

Reframe the Option

Behavioral Economics Lesson: Lack of Self Control. People do what feels good now, not what’s best in the long run.
Design Implication: Make the option a mandatory part of the process.
Example: Most high school students qualify for federal financial aid to help pay for college, but up to 30 percent are still not applying. In 2015-2016, <a href="https://www.savingforcollege.com/article/millions-of-students-still-fail-to-file-the-fafsa-each-year" target="_blank" rel="noopener">two million students</a> would have qualified if they had only completed the Free Application for Federal Student Aid (FAFSA). To remedy this, states have started to require high school seniors to complete the FAFSA before graduation, making it a part of the process. FAFSA application rates by high schoolers increased by more than 25 percent in Louisiana after the state <a href="https://www.insidehighered.com/news/2019/07/10/texas-becomes-second-state-require-fafsa-completion" target="_blank" rel="noopener">implemented the requirement</a> last year.

Make the Option a Step in the Process

Behavioral Economics Lesson: Loss Aversion. People are more motivated by the prospect of losing, than by making gains.
Design Implication: Show people what they are losing by doing nothing, like what they won’t have or an added negative consequence.
Example: <a href="https://www.hicharlie.com/" target="_blank" rel="noopener">Charlie</a>, a money savings messaging service, alerts users to potential negative consequences such as likelihood of an overdraft fee coming up. It also suggests the action to avoid the problem from occurring, like moving money into the account.

Highlight the Negatives of NOT Selecting the Option

The human brain is susceptible to many cognitive biases that hinder our abilities to make rational financial decisions. As designers, we have the responsibility to build around decision-making shortcomings by creating straightforward pathways to choices that are in the users’ best financial interests.

David Zemanek

Caroline Swingly

David has spent his career working on the front lines for product and solution companies. It started with banking, financial market solutions, technology, deployed and SaaS software solutions, integration technologies, and now in the realm of innovation consulting with frog.

Caroline is a Senior Strategist at frog San Francisco. Teams look to Caroline to frame up opportunities, connecting the dots between research and concepts. She crafts visions for how customers might interact in the future, why those interactions are unique and memorable, and what we can do next to bring transformational experiences to market.

Caroline Swingly

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Forget Financial Literacy, Design for Advocacy Instead

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