Ben KnelmanCEO, Juntos
Why is Financial Security out of Reach for so Many People?
Many of the answers to the question in the title above may seem too complex or obvious: unemployment, poverty, corruption, discrimination, or lack of access to financial services and opportunities. All of these could keep a newly banked woman from getting to an agent and making a deposit in her new savings account. But so could much smaller events like a bus with a flat tire or a dead cell phone battery. At JUNTOS, we see everyday the ways that these kinds of seemingly mundane, simple obstacles can have such an outsized impact on financial outcomes and behaviors.
In our work, much of the power of behavioral economics as a tool stems from how it helps us unearth the emotional, social, and environmental factors that influence the decisions people make with their money and the financial lives they create for themselves.
Often this means experimenting with what kinds of information truly put users on the path to reaching their goals. It’s simple to teach users through SMS, coaching how to check their bank balance from their phone. Is it helpful, though? Users may feel encouraged by the amount they see on that little, black screen, knowing they are slowly and steadily approaching their goal. On the other hand, behavioral economics also helps us understand that users are perhaps even more likely to feel tempted to spend that money today when they see those numbers. They may even do this out of dismay, feeling so far from ever achieving a high balance that they may as well give up.
Behavioral economics gives insight into which of these two scenarios is more likely in a given situation, and how simple changes in messaging can push people in one direction or the other.
Financial decisions, though influenced by our knowledge and feelings, may be even more powerfully directed by our social and physical environment. In a deep dive interview in Mexico, we were told the story of a man who every other month would travel many hours by bus with cash in his pocket to make deposits at a branch of his bank in his small hometown. He took this trip even though there were branches of his bank where he lived in Mexico City.
As he went about his business in Mexico City, he would often pass these branches emblazoned with the name of his bank. In the interview, he voiced his doubts about these city branches. Were these really there for him? Could he use them? Or were they just other banks that happened to have the same name as his bank?
The man could have asked someone around him – or inquired at the branches he continuously passed on the street – to resolve his uncertainty. And it would certainly have taken less time for him or his wife to do so, than to travel all the way back to their home village every time they needed to make a deposit.
But he didn’t want to ask what might turn out to be a “dumb” question. A question that would allow others to judge him. They might even confirm a fear in the back of his own mind that maybe he didn’t belong inside this world of formal financial services, because he didn’t have the comfort with financial services that a middle class consumer might come by naturally. Behavioral economics points to the emotional logic behind this outwardly irrational behavior: avoiding embarrassment is worth wasted time on the bus and the cost of a bus ticket. From a cognitive standpoint, convenience holds little weight in decision making when it is paid for in emotional costs.
Each of these moments is an opportunity for JUNTOS. As a text message service available to our users at any moment of every day, we help frame their experience of the financial services around them. Slowly building habits, providing information, and lessening the emotional risks involved with these simple but powerful financial tools. Both the research we do in-house and the exciting findings produced by other behavioral researchers around the world, form an essential piece of how we design tools that have a lasting impact on financial behaviors and the users who choose them.