Using behavioural insights to help consumers save more money

Irish consumers could be encouraged to save more money by using behavioural insights, new research from the CCPC has shown. The report, which was carried out in collaboration with the Economic and Social Research Institute (ESRI), found that interventions such as simple changes to customer communications and the design of application forms can significantly impact consumer behaviour. In addition, the report found that financial providers could see a 25% increase in the uptake of savings accounts among low-income customers by applying behavioural science principles.


The report's authors say that the findings could help improve financial inclusion in Ireland and increase consumer awareness of the importance of saving. They also believe that banks and other institutions could apply the insights gained from the research to other areas of personal finance, such as credit cards and mortgages.





Informing pro-consumer policy


The CCPC's director of research, Derville Rowland, said that the report's findings underline the need for financial providers to "do more to engage with their customers and help them make better choices". She added that the results could also inform public policy on financial inclusion.


It is now in 2022 that Ireland is waking up to the importance of financial education. Simple changes to messaging and how information is presented to people significantly impact outcomes. Understanding the consumer's point of view and seeing money from their point of view can be leveraged to help bridge the gap between the haves and the not haves.


To many, dealing with personal finances can be a daunting proposition, especially when they have never had formal education in that area or have not picked up these vital life skills at home.


Inflation predictions in Ireland


In April 2022, the Central bank announced inflation in Ireland is rising and is expected to peak at 7.7% in the second quarter of this year. This is the highest inflation rate since 1984, briefly touching 7%. The main drivers of inflation are rising prices for food and fuel and higher costs for housing and insurance. In addition, the Irish central bank has forecast that consumer price inflation is expected to average 6.5% this year due to extreme energy price inflation, moderating to 2.8% in 2023 and 2.1% in 2024.


This slowing of inflation will be welcomed by the people of Ireland, who've felt the squeeze as prices have risen faster than wages. However, it is worth noting that inflation appears lower than the European Union average of 7.5%. However, a lot remains to unfold this year, so only time will tell how accurate this prediction might be.


Behavioural science can help the Irish weather financial storms.


How people behave around money has a significant impact on managing their finances and how well they can weather financial storms. For example, applying behavioural science to customer communications and the design of application forms can help a financial provider increase uptake of savings accounts by over 25%.


The ESRI's research report also records the most significant benefit among lower-income customers, who are most vulnerable to the adverse effects of unexpected expenses and financial shock. This shows how important it is for everyone to have some financial education so that they can make the best decisions for their own personal finances.


Fear, the great motivator


Many people are motivated to save money due to the fear of future financial shocks. The CCPC study found that customers who were shown numbers about future economic shocks were more likely to open a savings account than those who received standard marketing materials. This implies that consumer-friendly infographics about future financial shocks can be an effective way to motivate people to save money.


The results showed that those who received these emails were 20% more likely to open a savings account than those who received the standard marketing materials. In addition, the study's 'financial shock' emails and digital ads saw a "click-through" rate increase of almost 10%. This research provides valuable insights into how banks can promote saving behaviours among their customers more effectively.


Behavioural science speaks the truth about customer outcomes


Evidence-based findings have shown that most customers decide to use optional interactive calculators to calculate their total savings target, the date they want to reach their goal and how much they tried to save each month. In addition, customers who opened a savings account were 10% more likely to have used the calculator than those who started a savings account application form but didn't complete it.


The findings also showed that customers who used the calculator were more likely to be satisfied with their results and felt more confident about their ability to reach their savings goals. These findings suggest that interactive calculators can be a valuable tool for helping customers save money.


Education builds richer futures


One of the most important things we can do to empower people to take control of their financial future is to provide them with evidence-based information.


Evidence backed by science can show saving money is possible when there are signposts and supports along the way. For example, when people feel like they can take action and succeed, they are more likely to open a savings account or take other steps to improve their financial situation.


However, if they feel like they cannot succeed or will not be supported, they are much less likely to take action. This is why it is essential to provide accurate and empowering information to people when trying to improve their financial situation. By doing so, we can help them take the necessary steps to secure a bright financial future.


Reframing money messages makes them easier to understand


Traditionally, the concept of a "rainy day fund" or 'emergency fund' has encouraged people to set aside money for unexpected expenses. However, new research has shown that reframing this messaging to focus on "unexpected expenses" can positively impact consumer behaviour when setting specific savings goals.


The CCPC study found that when people were asked to set aside money for unexpected expenses, they were more likely to do so than when asked to set aside money for a rainy day fund. This suggests that reframing the language used in finance circles can positively influence consumer behaviour. Ultimately, this could lead to more people being able to cover unexpected expenses without going into debt.


Flexibility is empowering


Supporting consumers with flexible options is essential, especially regarding their finances. Pledge tools, which offer customers the chance to make pre-commitments to withdraw only for specific reasons, are so valuable. International evidence shows that flexible commitments appeal more to customers than fixed withdrawal restrictions.


Participants in the trial study who opened a savings account were over 2.5 times more likely to have used the optional pledge tool than those who started the application but didn't complete it. This demonstrates the significant impact that pledge tools can have on people's financial decision-making. By offering consumers flexibility and choice, pledge tools empower them to make the best decisions for themselves and their families.


Summary


The rise in inflation is a clear indicator that we need to take our financial futures into our own hands. Financial education is key to future success. By reframing messaging, allowing flexibility, and educating and supporting people through tools and calculators, people are more empowered to start saving and taking control of their money. With the right tools, anyone can overcome these challenges and achieve their financial goals.


There is a second and more powerful message that I am taking away from this report. That message is that there is no such thing as being 'good' or 'bad' with money. It is more to do with confidence with money and education around cash that makes the most significant fundamental difference in our finances.


The best part of this is that any age, demographic, or geographical location are skills that can be learned and applied. Now that's a reason to take heart and feel empowered in these rocky moments.


Now is the time if you are ready to step up and take control of your financial future. So reach out and book that call to work with me as your coach to get the mindset, systems and healthy relationship with money to build that wealth now and into the future, no matter what the economy or life throws at you.




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