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Behavior Change: The Missing Piece in Financial Education

June 24, 2020

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It’s more than facts and figures.

Think of the last time you set a personal goal. Maybe you wanted to exercise more or focus on better nutrition. Or maybe you wanted to prioritize making time for friends or do more activities with your kids.

Whatever your goal, knowing what you wanted to do—or even knowing how to do it—might not have been enough. Knowing what exercises you want to do isn’t enough to make you do them every day. It takes self-control, a firm belief in your ability to change, and a whole lot of motivation to make a goal become reality. And then, over time, the goal becomes a habit.

The same is true for financial goals. This is why the current approach to financial education—of teaching kids facts and figures about money—isn’t a great approach. It’s a necessary component, of course, but not enough. At the heart of great financial education is a deep attention to behavior.

But what does an attention to behavior mean in practice?

Good financial education builds new behaviors from past financial experiences.

Students enter a financial education classroom with a tremendous amount of prior knowledge from their own life experiences around money. Some of these experiences may echo the messages in the curriculum, but others may contradict what students are learning. For example, kids may have observed parents running up credit card balances or habitually making late payments, behaviors that can destroy credit scores even if done out of necessity. Financial education must elicit and address personal experiences; doing so can help students unpack the impact of these behaviors and construct concrete plans for future financial behaviors.

Good financial education helps students understand and control the mental processes that affect financial behaviors.

Many mental processes affect financial behaviors. For example, executive functioning skills—or the cognitive skills that underpin self-control and impulsivity—impact financial decision-making, as successful money managers tend to think long-term. This can affect choices ranging from whether to spend money on something (rather than save) to whether to hold onto stocks during an economic downturn. In addition, personal characteristics and beliefs—such as one’s risk-seeking tendencies, what one values in life, and how confident one is in one’s financial abilities—can influence financial decision-making. Financial education should help students unpack their own mental processes related to risk, delayed gratification, and so forth—and help them develop strategies to consider their own mental tendencies in making financial choices.

Good financial education provides the opportunity for repeated, low-stakes practice of financial behaviors.

Of course, understanding how past experiences and mental processes influence financial behaviors is one thing. Using that understanding to make sound financial decisions is another. Just as musicians practice over and over before they hold a live performance, students must intently practice in the classroom before they “go live” with financial decisions. Making financial decisions outside of the classroom is more pressure-packed and impactful, because there is something real at stake. Being under pressure can make sound decision-making more difficult, as high emotions tend to disturb mental processes (just ask people with road rage). Students must practice making decisions in the low-stakes context of the classroom—and experience and learn from failure in realistic scenarios—before they make more high-stakes decisions.

Good financial education engages students in critical examination of their own place in the economic system—and how that place impacts the outcomes of financial behaviors.

Recent events, such as racial disparities in COVID-19 deaths and instances of police brutality, have shown how all of our institutions are fraught with inequity. There are no “great equalizers” in our society; people have different experiences with institutions based on their demographics and background. Many financial institutions contribute to such inequity. Everything from home lending to credit card use to simple access to banks has been shaped by a history of discriminatory financial policies and biases of actors within the financial system. Students need to be aware of this context, and how this context shapes economic opportunities, policies, and outcomes in the present day. Making such contextual factors explicit gives students the option to accept, question, or learn to navigate them. It also gives students the chance to learn about broader economic factors and take on roles as citizens in shaping financial opportunity and policy.

Start with a student-centered approach.

In conclusion, behaviors are shaped by what students bring to a financial education course and the deeply personal lens through which they approach financial literacy. Good financial education builds on these personal experiences and dispositions, rather than ignoring them in favor of teaching “objective” facts that, in truth, apply differently to different people. Such a student-centered approach to financial education is rooted in decades of research on how people learn and how behavioral change in many fields—from health to finance—takes place. Many curriculum materials have not done this research, but educators should find the ones that have.

In short, the goal of a responsible financial education program should be to change both the mind and the behaviors. Not an easy task without the proper approach