Joanne Yoong - 2014 Symposium on Financial Education in Korea
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Joanne Yoong - 2014 Symposium on Financial Education in Korea

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This presentation by Joanne Yoong was made at the High-level Global Symposium on Financial Education: Promoting Long-term Savings and Investments in Korea which explored policies and good practices ...

This presentation by Joanne Yoong was made at the High-level Global Symposium on Financial Education: Promoting Long-term Savings and Investments in Korea which explored policies and good practices for supporting long-term savings and investments through financial education and financial consumer protection. Find out more at http://www.oecd.org/daf/fin/financial-education/globalsymposiumonfinancialeducationforlong-termsavingsandinvestments.htm

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    Joanne Yoong - 2014 Symposium on Financial Education in Korea Joanne Yoong - 2014 Symposium on Financial Education in Korea Presentation Transcript

    • Financial Education For Long-Term Savings and Investment : What does the Literature Tell Us? JoanneYoong USC/NUS Wednesday, 26 February, 14
    • Overview • Context • Framework • Highlights from the Literature • Preliminary Observations Wednesday, 26 February, 14
    • FE for LT Savings and Investments • Content focus : knowledge, skills and capability to manage and accumulate savings to address long-term needs and risks (including pensions, education, marriage and divorce, funerals and loss of income) • Product focus : savings products, term-deposits, unit trusts, mutual funds, bonds, shares and/or retirement funds/schemes OECD Subgroup Definition Wednesday, 26 February, 14
    • Project Scope • Develop a framework for considering behavior on LT savings and investment and related interventions • Investigate literature on LT savings and investment interventions • Propose strategies to improve interventions Wednesday, 26 February, 14
    • Different Target Audiences •  Young people •  Workers •  New retirees Stages of the life- cycle •  Women •  Migrants Disadvantaged population groups •  Windfall recipients •  Suboptimal savers •  Injured investors “Vulnerable” savers and investors Wednesday, 26 February, 14
    • Introduction • Context • Framework • Highlights From The Literature • Preliminary Observations Wednesday, 26 February, 14
    • The Ideal Consumer Understanding of financial products, risks and concepts Wednesday, 26 February, 14
    • The Ideal Consumer Understanding of financial products, risks and concepts Awareness of financial risks and opportunities Wednesday, 26 February, 14
    • The Ideal Consumer Understanding of financial products, risks and concepts Awareness of financial risks and opportunities Making an informed choice Wednesday, 26 February, 14
    • The Ideal Consumer Understanding of financial products, risks and concepts Awareness of financial risks and opportunities Making an informed choice Seeking appropriate help Wednesday, 26 February, 14
    • The Ideal Consumer Understanding of financial products, risks and concepts Awareness of financial risks and opportunities Making an informed choice Taking other actions for well-being Seeking appropriate help Wednesday, 26 February, 14
    • The Ideal Consumer Understanding of financial products, risks and concepts Awareness of financial risks and opportunities Making an informed choice Taking other actions for well-being Seeking appropriate help KnowledgeSkills Confidence Wednesday, 26 February, 14
    • The Ideal Bridge Mandated Action Advice Instruction Information Laissez Faire Financial Education Wednesday, 26 February, 14
    • The Ideal Policy World Scientific Evidence Financial Education Policy Behavior Change Wednesday, 26 February, 14
    • Back to the Consumer Understanding of financial products, risks and concepts Awareness of financial risks and opportunities Making an informed choice Taking other actions for well-being Seeking appropriate help KnowledgeSkills Confidence Wednesday, 26 February, 14
    • Theoretical Drivers of Choice KnowledgeSkills Confidence Wednesday, 26 February, 14
    • Shadow Drivers of Choice KnowledgeSkills Confidence Wednesday, 26 February, 14
    • Shadow Drivers of Choice KnowledgeSkills Confidence System 1 (Fast) System 2 (Slow) Fast Slow Constant, automatic Effortful, deliberate Subconscious Self Aware Reflexive,Associative Rational, logical Wednesday, 26 February, 14
    • Shadow Drivers of Choice KnowledgeSkills Confidence Heuristics Wednesday, 26 February, 14
    • Shadow Drivers of Choice KnowledgeSkills Confidence Heuristics Beliefs and Preferences Wednesday, 26 February, 14
    • Shadow Drivers of Choice KnowledgeSkills Confidence Beliefs and PreferencesHeuristics Biases and Affect Wednesday, 26 February, 14
    • What could go wrong? Frankly I don’t see the problem with that… Wednesday, 26 February, 14
    • What could go wrong? Frankly I don’t see the problem with that… Me neither Wednesday, 26 February, 14
    • Some critical principles • Understand your own circumstances and plan ahead for your future • Take (calculated) risks • Diversify your approaches • Stay the course through short-term uncertainty • Track and evaluate the financial consequences of your actions Wednesday, 26 February, 14
    • Some critical problems The past is a foreign country. • Social, demographic and political change make it difficult to form actionable expectations about the future based on past norms and/or experiential learning Wednesday, 26 February, 14
    • Some critical problems In the long run we are all dead • Present-biased individuals have difficulty incurring short term costs for long-term gains • Many of us are disaffected = have difficulty physically visualising the future Wednesday, 26 February, 14
    • Other problems • Understand your own circumstances and plan ahead for your future • Take (calculated) risks • Diversify your approaches • Stay the course through short-term uncertainty • Track and evaluate the financial consequences of your actions Wednesday, 26 February, 14
    • Other problems • Understand your own circumstances and plan ahead for your future • Take (calculated) risks • Diversify your approaches • Stay the course through short-term uncertainty • Track and evaluate the financial consequences of your actions • Inappropriate/inaccurate beliefs • Poor financial numeracy; inappropriate loss aversion/ risk aversion / ambiguity aversion / regret aversion • Complexity avoidance • Emotional responses and disproportionate responses to salient events • Limited attention and procrastination Wednesday, 26 February, 14
    • Other problems • Understand your own circumstances and plan ahead for your future • Take (calculated) risks • Diversify your approaches • Stay the course through short-term uncertainty • Track and evaluate the financial consequences of your actions • Inappropriate/inaccurate beliefs • Poor financial numeracy; inappropriate loss aversion/ risk aversion / ambiguity aversion / regret aversion • Complexity avoidance • Emotional responses and disproportionate responses to salient events • Limited attention and procrastination By no means exhaustive... Wednesday, 26 February, 14
    • Introduction • Context • Framework • Highlights From The Literature • Preliminary Observations Wednesday, 26 February, 14
    • Reflections On the Literature • Existing cumulative evidence is still far from robust • Mixed results and lack of comparable, robust study designs • But four recent trends are cautiously promising • Increasing number of international studies • Increasing number of studies with “behavioral” component • Increasing number of studies with RCT or other causal identification • More positive “proof of concept” results • Yet important areas of improvement remain from a policymaker perspective • No consensus on best practices • Virtually no studies of cost effectiveness Wednesday, 26 February, 14
    • Reflections On the Literature • Existing cumulative evidence is still far from robust • Mixed results and lack of comparable, robust study designs • But four recent trends are cautiously promising • Increasing number of international studies • Increasing number of studies with “behavioral” component • Increasing number of studies with RCT or other causal identification • More positive “proof of concept” results • Yet important areas of improvement remain from a policymaker perspective • No consensus on best practices • Virtually no studies of cost effectiveness Wednesday, 26 February, 14
    • Notable New Comprehensive Reviews • Systematic Reviews and Meta Analysis • Miller, Margaret, and Reichelstein, Julia and Salas, Christian and Zia, Bilal.(2014) “CanYou Help Someone Become Financially Capable? A Meta-Analysis of the Literature”, Background Paper to the 2014 Global Financial Inclusion Report • Fernandes, Daniel and Lynch, John G. and Netemeyer, Richard G. (2014) “Financial Literacy, Financial Education and Downstream Financial Behaviors”, Management Science, forthcoming • Important Narrative Reviews • Lusardi,Annamaria, and Olivia S. Mitchell (2013) “The Economic Importance of Financial Literacy:Theory and Evidence.” National Bureau of Economic Research Working Paper 18952 • Xu, Lisa and Zia, Bilal (2013),“Financial Literacy In the Developing World”,World Bank Mimeo (previously Policy Research Working Paper 6107) • Hastings, Justine S. and Madrian, Brigitte C. and Skimmyhorn, Bill (2013) “Financial Literacy, Financial Education, and Economic Outcomes”.Annual Review of Economics,Vol. 5, pp. 347-373 Wednesday, 26 February, 14
    • Miller et al (2014) • Covers 188 intervention studies • Peer-reviewed studies of financial education between 2000-2013 • Previously included in literature reviews published since 2007 • Selected sources of grey literature (World Bank, OECD, etc) • Examine studies on savings, retirement savings, record keeping and loan performance separately (unlike Fernandes et al 2013) • Savings/retirement is the single largest subject area (30% of all papers, not including the “mixed” subject category) Wednesday, 26 February, 14
    • Meta Analysis Results Source: Miller et al(2013) Of 6 studies that met the inclusion criteria (all RCTS) only 2 found a significant effect on savings However, when the data is pooled and weighted, the overall finding is that financial education does positively affect general savings at a 95% level of confidence Wednesday, 26 February, 14
    • Meta Analysis Results Source: Miller et al(2013) Of 5 studies that met the inclusion criteria, none were RCTs. 3 reported a significant effect on savings Data suggests that financial education can significantly affect retirement savings albeit at lower confidence Wednesday, 26 February, 14
    • Case 1: Financial Education In Schools in Brazil Bruhn, Leao, Legovini, Marchetti and Zia(2012) • Intervention: RCT of comprehensive financial education delivered to Brazilian high school students and families. •As part of large-scale national initiative, embedded case- study based personal finance curriculum into existing classroom teaching • Results: Exposure to curriculum increases savings • Increased proficiency in knowledge, accompanied by increase in overall student savings rate and more expression of financial autonomy • Parental interaction reinforces savings behavior • Compare to: previous school-based studies disputing results based on observational evidence ( Bernheim, Garrett and Maki 2001, Cole and Sastry, 2010); other unpublished studies targeting school-age children (Berry, Karlan and Pradhan 2012) Wednesday, 26 February, 14
    • Case 2: Financial Education In The US Army Skimmyhorn (2012) • Intervention: Quasi-experimental study of phased rollout of savings education delivered to newly enlisted US Army personnel in 2007-2008 •In-person 8 hour mandatory personal financial management course combined with immediate enrollment assistance • Results: Attendance at PFMC increases retirement savings contributions to the Army Thrift Savings Plan by 2x with results persisting for at least 2 years • Compare to: Previous studies of workplace financial education interventions which show little lasting effect on behavior (Duflo and Saez, 2002; Clark and D’Ambrosio, 2008) Wednesday, 26 February, 14
    • • Intervention: 2x 2 RCT of savings and remittance training delivered to migrant workers and their families prior to departure. •In-person group training of 8 hour module for families and 18 hour module for worker using comicbooks, brochures, games and take-home workbooks • Results: Financial education was significantly more impactful in cases when training both migrants and their families • No change in numeracy but significant impact on awareness • No change in remittance level but significant impact on savings behavior • Compare to: Previous savings FE studies in Indonesia (eg Cole, Sampson and Zia, 2011) as well as other types of FE targeted at migrant workers (eg Gibson, McKenzie and Zia 2012) Case 3:“WhoYou Train Matters” Doi, McKenzie and Zia(2012) Wednesday, 26 February, 14
    • Reflections On the Literature • Existing cumulative evidence is still far from robust • Mixed results and lack of comparable, robust study designs • But four recent trends are cautiously promising • Increasing number of international studies • Increasing number of studies with “behavioral” component • Increasing number of studies with RCT or other causal identification • More positive “proof of concept” results • Yet important areas of improvement remain from a policymaker perspective • No consensus on best practices • Virtually no studies of cost effectiveness Wednesday, 26 February, 14
    • Meta Analysis Results • Insufficient data to meaningfully examine effects of variation in characteristics across different interventions Source: Miller et al(2013) Wednesday, 26 February, 14
    • An Important Question... More effective More costly Less costly C Less effective Wednesday, 26 February, 14
    • An Important Question... More effective More costly Less costly C Less effective Wednesday, 26 February, 14
    • An Important Question... More effective More costly Less costly C Cost effectiveCost ineffective Less effective Wednesday, 26 February, 14
    • Cost effectiveness is unknown • Only 1 study to date - Cole, Sampson and Zia (2011) • Intervention: RCT of savings-linked financial education training session developed for unbanked individuals to encourage use of SIMPEDES low-cost bank account • Results: Limited success - only less-financially literate individuals showed any impact on opening bank accounts • Cost-efficiency analysis: Compare FE to Subsidy • Literacy training costs approximately $17 per head to deliver and increases chance of bank account by 5% at best • Changing subsidy from $3 to $14 does so by 7.6%. • Inducing the opening of one bank account cost $17/0.05 = $340 with education versus $11/0.076 = $145 with subsidy Wednesday, 26 February, 14
    • Overview • Context • Framework • Literature • Preliminary Observations Wednesday, 26 February, 14
    • In Conclusion • Understand your own circumstances and plan ahead for your future • Take (calculated) risks • Diversify your approaches • Stay the course through short-term uncertainty • Track and evaluate the financial consequences of your actions We ask individuals to make LT investment for their own future based on these principles Wednesday, 26 February, 14
    • In Conclusion • Understand your own circumstances and plan ahead for your future • Take (calculated) risks • Diversify your approaches • Stay the course through short-term uncertainty • Track and evaluate the financial consequences of your actions Consider FE as a LT investment in a country’s future. Can we practise what we preach when making policy? Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Consider scientific evidence across disciplines • Financial education • Educational practice • Behavioral economics But also have the courage to take risks • Conventional wisdom is changing Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Assess need based on specific past/present/future Seek out platforms that are tightly integrated into existing consumer pathways Use pedagogical methods that address the capacity, motivations, experiences and preferences of the target audience Identify and work with complementary/substitute programs For LT need to consider working across sectors Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Prioritize and focus content delivery •Attention and time are scarce resources •Too much = avoidance and loss of confidence •Allow for repetition and reinforcement For voluntary programs especially, pragmatic design and marketing is must-have, not “nice to have” Teach knowledge acquisition or advice-seeking skills Work together with regulatory approaches Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation No take up = No effect No follow-through = No effect And especially for LT, No continuity = No effect Wednesday, 26 February, 14
    • 5 First Lessons From The Field Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Plan from inception Consider spectrum of approaches Measure cost-effectiveness Disseminate and share!!! Wednesday, 26 February, 14
    • The Ideal (And Achievable) Virtuous Circle Be open to evidence- based innovation Develop from and embed in context Be specific in need and content Build in financial and non-financial incentives Be open to evaluation Wednesday, 26 February, 14
    • Thank you! Discussion or comments related to the project (or not!) are always welcome jyoong@usc.edu joanne_yoong@nuhs.edu.sg ephysjy@nus.edu.sg Wednesday, 26 February, 14
    • Introduction • Context • Framework • Highlights From The Literature • Preliminary Observations Wednesday, 26 February, 14