Transforming Intentions into Behaviors

Co-sponsored by the New America Foundation and Innovations for Poverty Action

In their acclaimed new book, More than Good Intentions, Yale economist Dean Karlan and Jacob Appel show how small changes in development initiatives can drastically improve the well-being of the poor. As behavioral economists have shown, people are faced with psychological barriers that can lead to irrational choices and prevent certain positive behaviors from forming. In the literature on financial capability, the behavioral challenges to altering and establishing savings habits are too often understated or at times neglected altogether. On June 27^th, the New America Foundation and Innovations for Poverty Action(IPA) co-hosted an event to discuss financial capability, the book – More than Good Intentions, as well as release a new report by the Global Assets Project called “Accelerating Financial Capability Among Youth: Nudging New Thinking.” The event was moderated by Jamie Zimmerman, Director of the Global Assets Project, and panelists included Ben Shell, Senior Associate at Women’s World Banking; Joshua Sledge, Analyst at the Center for Financial Services Innovations; Guy Stuart, Lecturer at Harvard University; and Dean Karlan, President of IPA.

Dean Karlan began the event with a keynote speech, highlighting three basic points for the audience on linking research to policies and programs targeted at poverty alleviation. First, it’s important to think small and think big at the same time. In essence, we can learn much more about the effectiveness of an intervention when teasing out its specific mechanisms, like understanding how clients respond to interest rate fluctuations when considering the effectiveness of a microcredit program. Thinking big comes from recognizing that some questions need to be answered in multiple contexts with applied theories. Karlan’s second point was to avoid hyperbole including in the youth savings field. Third, he concluded, we need to look at the full portfolio when forming policies and products, and teaching people about how to engage in better financial decision-making for the household.

After Dean Karlan’s keynote, Payal Pathak, Program Associate with the Global Assets Project, highlighted three key linkages that motivated the thinking for their newly released paper. The first was born out of this emerging discussion of financial capability and how standard definitions (i.e. access to financial services plus financial education) are overlooking the psychological barriers that prevent individuals from making sound financial decisions. The second consideration is what the paper refers to as the last mile problem to establishing sound, financial behaviors. In other words, linking desire and ability (through financial education) and opportunity (through access to financial services) to behavioral outcomes. Last, she addressed the psychological barriers to developing sound financial behaviors, specifically saving, and how those barriers can be counteracted earlier in a person’s life through nudges.

Following Payal’s presentation, Jamie Zimmerman, Director of the Global Assets Project took the podium to moderate the panel discussion, asking panelists to share a few words on financial capability. Dean Karlan’s key takeaway was that labels get changed around (with respect to financial capability) because strong evaluations are missing. Ben Shell emphasized that in order to achieve financial capability we need to think innovatively when offering traditional financial services. For example, linking a social communication campaign, marketing campaign with account offerings, and financial education workshops can provide a holistic approach to financial capability. Josh Sledge maintained that financial education focuses on what you know and financial capability is a set of behaviors that consumers can adopt to improve their financial health including saving and planning for the future. To that end, CFSI 1) advocates for extending beyond the classroom to exercise those financial behaviors 2) has set up a Financial Capability Innovation Fund to provide seed funding to organizations that are combining access, education, and behavior mechanisms and 3) is also working with a set of evaluators to assess programs. Last Guy Stuart, defined capabilities as the ability to act within the society you live. Therefore, according to Stuart, financial capability is what it takes to manage one’s money well in the context in which they live.  He went on to explain the participatory approach that Microfinance Opportunities has taken to define financial capabilities within various societies.

The panelists concluded their remarks with one nudge they would like to see tested.

.

Participants