Are your financial literacy programs a waste of time and money?

The United States has a savings crisis.  According to the Federal Reserve, household rates of saving have dropped to levels not seen since 2008 and are not far from the all-time low.  Surveys show that a majority of households don’t have $1,000 in liquid assets accessible in an emergency, and according to a recent CNBC survey a full 39% have no access to liquid savings at all.  Typically, our response to this problem is to ramp up our financial literacy efforts.  We think if we tell people they should save more, and advise them how to save, our work is done.  However, the CNBC survey data shows these efforts are not making much of a difference.  

This isn’t about not knowing, it’s about how we’re wired.  We see the same pattern in healthcare.  People know they should lose weight, know why it is important and know what kind of changes they could make today for a difference.  But they don’t act.

The problem is not just a lack of knowledge or education.  While knowledge is a prerequisite for proper behavior, by itself knowledge does little to change behavior.   It is likely most of your members know they should save, but they don’t. And don’t hide behind the assumption your members’ financial condition will not allow them to save.  Our partners at the Common Cents Lab at Duke University surveyed low and moderate income households and found that over 90% could name three things they could do immediately to start saving, even if the amounts were small.  

If education isn’t the problem, what is?

Science and common sense tells us changing behavior is hard work.  And when it comes to our dysfunctional relationship with money, the effort needed to change is even harder.  In their new book Dollars and Sense, Dan Ariely and Jeff Kreisler review the multitude of ways money further amplifies the confusing and often irrational ways individuals actually analyze choices and make decisions.  Ariely’s work as one of the leading behavioral economists of our time provides us with solid insights into creating more effective connections with our members and assisting them in improving their financial wellbeing.

How are credit unions leveraging these insights?

Do you make it easy for members to save?  One credit union realized it was easier to cash a check than deposit a check.  Once they equalized the effort, savings increased.  

Do you default your members into a monthly savings plan, moving money automatically from shares to savings?  One of our credit unions does this with new accounts. Members are informed of the program when they join and can opt-out then or anytime in the future, but few do.  

When a member is close to paying off a car loan, what do you do?  Do you send a letter encouraging them to buy a new car, like my credit union did, or would you suggest the account continue to be debited once the loan is paid off and the money put into savings?  

Do you have programs in place to encourage members to save some of their tax refunds?  Using a concept called pre-commitment, our partners at Common Cents Lab had an appreciable impact on the number of households that saved a significant portion of their tax refund.

Knowing isn’t doing.  Financial literacy efforts are valuable IF you pair them with an environment that helps your members implement what they have learned. Otherwise, they really are just a waste of time and money.

Rick Leander

Rick Leander

Rick Leander is Founder and Managing Partner of LFB Holdings, a behavioral insights consultancy that works with established and startup enterprises. At LFB Holdings we teach clients how to leverage ... Web: Details