‘Financial Health Check’ boosts money savvy

Traditional financial education often fails to improve consumers' behavior.

April 9, 2020

A growing consensus among researchers indicates traditional financial education classes (i.e., those that simply convey financial knowledge in a classroom environment) don’t adequately improve long-term financial knowledge and financial wellness, according to the report, “Financial Literacy, Financial Education, and Downstream Financial Behaviors.”

That’s because many participants fail to follow up after leaving the classroom by, for example, opening a savings account.

Classes often don’t fit into people’s schedules, they’re not personalized to meet individual needs, and they may be too complex or include too much information.

Traditional classes typically don’t address behavioral barriers to saving and improving financial wellness, such as temptation or status quo bias (i.e., people doing what they’ve always done because it’s easier).

However, financial education and literacy efforts that specifically target the young, involve “rules  of thumb,” consider behavioral challenges, and have an action component or closely precede financial decisions are considerably more impactful, according to the Federal Reserve.

For example, ideas42, a nonprofit organization that uses behavioral science to solve social  problems, teamed up with $22 billion asset BECU in Tukwila, Wash., to see if it could use behavioral science to improve financial education.

It designed the “Financial Health Check,” which includes a one-time, 30- to 60-minute phone appointment with specially trained consultants who work one-on-one with participants to review monthly budgets and create financial goals.

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The consultants then help people set up recurring transfers in support of those goals so funds automatically flow to designated savings or debt accounts without further action.

A system of automated transfers establishes a new “status quo” in which funds are diverted to  specific goals on a recurring schedule, and emails or text alerts spark action when adjustments are necessary.

The program was designed to fit into people’s schedules, to facilitate follow-through in real time (i.e., over the phone), and to make long-term commitment as automatic as possible.

Early results of the pilot program were encouraging: Compared with a control group of peers that were not offered Financial Health Check appointments, BECU members who participated experienced a 33.9% average increase in the number of net savings transactions, a 4.7% increase in the number of savings deposits, and an 11.5% increase in dollars deposited.

Credit unions should consider incorporating similar strategies to maximize efforts at improving financial wellness through education.

JORDAN VAN RIJN is a senior economist at CUNA.