Budget Management – Center for Advanced Hindsight

Lessons on Designing Scalable Financial Coaching

admin — Thu, 11 Nov 2021 20:12:49 +0000

Background

Financial interventions for consumers and employees rely heavily on financial education, but financial education has demonstrated virtually no impact on behavior change, accounting for only 0.3% of the variance in financial behaviors. While financial coaching has been found to be effective at improving financial outcomes, it’s expensive to offer and suffers from high drop-out rates.

The Center for Advanced Hindsight (CAH) partnered with Moneymap, a high-tech, high-touch financial coaching platform, to experiment with ways to make financial coaching more effective at a more accessible cost.

We wanted to know:

● Does changing the tone of financial coaching affect outcomes? Specifically, we decided to vary the levels of:

_____○ Self-efficacy, or users’ feeling that they have the ability to meaningfully impact their _____ financial situation.
_____○ Accountability, or users’ awareness that their coach expects them to complete tasks.

● What contact method works best for financial coaching? Specifically, we wanted to study the effectiveness of two different methods of coach-client contact:

_____○ Phone calls, which are higher-cost, must be scheduled for a specific time and allow _____ for more direct, personal contact.
_____○ Self-guided surveys, which are lower-cost, can be completed at any time and result _____ in a more autonomous experience.

We also wanted to know how these different contact methods and tones combine to affect outcomes. To test these questions, we designed edits to Moneymap’s coaching program.

In Moneymap, participants have two touchpoints with their coach. Between these touchpoints, they accomplish three To-Do’s. After the two touchpoints, they enter into a sustain phase where they can contact their coach as needed.

Experiment Design

CAH implemented two interventions into the program design.

Call versus Survey

To test contact methods, we randomly assigned participants to either talk to their coach on scheduled phone calls or to take self-guided surveys that their coach would later review. Participants were defaulted into one of the two contact methods, but could switch from one contact method to the other.

Participants had two touchpoints with their coach – one at the beginning of the program and one after 4 weeks. For the first touchpoint, reviewing a survey required about 5 – 7 minutes of a coach’s time, while calls required about 20. We wanted to understand whether experiencing the more efficient, lower-cost surveys would result in different outcomes for participants – specifically, whether condition would have an effect on completion rates for their two touchpoints and their three assigned To-Dos.

Examples of commonly assigned To-Do’s are included below.

Self-efficacy versus Accountability

To test tone, we customized language throughout the program to create two parallel experiences designed to either (1) build self-efficacy, or (2) increase accountability for completing tasks. Then, we randomly assigned participants to receive one of the two types of messaging.

In the field

Participants were recruited for the 6 month program between July 8th and September 6th, 2020, gathered from three small-to-midsize employers and one large online savings platform. Out of 2,795 people who began signup, 1,560 finalized their signup and are considered our participant pool. Attrition was evenly distributed across the four conditions. Because all but 143 participants were recruited from the online savings platform, we did not distinguish between recruitment sources in our analyses.

Results

Call versus Survey

207 participants chose to switch from the call condition to the survey condition, while only 7 participants chose to switch from the survey to the call condition. Significantly more participants in the survey condition completed the first touchpoint (p < 0.001). There was no significant difference in completion rates for the second touchpoint (p = 0.15).

The difference in completion rates between conditions seems to be driven by timing. Most participants in the survey condition chose to fill out the first survey right away (585 vs. 162), and those participants were more likely to complete it than those who delayed (98% vs. 36% completion).

While there was no significant difference in completion of the first or second To-Do based on contact method, participants in the survey condition were more likely to complete the third To-Do (p = 0.018).

Self-efficacy versus Accountability

When analyzed alone, messaging tone had no significant effect on outcomes. When we analyzed the combination of contact methods and tone, survey + self-efficacy outperformed the other three conditions, particularly in 1st (p = 0.018) and 3rd (p < 0.001) To-Do completion.

Income Breakdown

To better inform financial inclusion efforts within financial coaching and other initiatives, we also analyzed the effect of household income on touchpoint and To-Do completion.

Of participants who completed signup, 89% had a household income under $75,000.

Not surprisingly, touchpoint completion rates and To-Do completion rates increase with household income. Households earning under $25,000 annually (815 participants) were significantly less likely to attend touchpoints (p < 0.001), and significantly less likely to complete any To-Do’s (p < 0.001).

Implications of Findings

While this research had limitations, the largest being the short-term nature of the outcomes measured, these findings still unveil some valuable insights for those designing financial coaching programs:

Design for Time Scarcity

In this study, communicating via a self-directed survey was more attractive for participants, less costly for coaches, and resulted in similar or higher completion rates compared to a traditional introductory phone call. Consider developing a financial inclusion coaching program with less rigid touch points so that participants can complete them on their own schedule. Recent research on flexibility showed that flexible scheduling influenced both participation and longer lasting habit formation. While this recent work involved more than just flexible scheduling, providing flexibility remains important when designing for limited bandwidth.

Build on Momentum

Respondents had much higher touchpoint completion rates when they were able to take action immediately. Consider developing a self-directed option to take the place of one or more face-to-face touchpoints, particularly at junctions when participants may need to wait to speak with a person. The CFPB financial well-being questionnaire includes examples of perception-oriented questions that can be supplemented with specific financial data questions to give coaches a solid foundation for planning prior to ever sitting down with anyone.

This research was conducted in collaboration with Moneymap through the financial support of Prudential.

The post Lessons on Designing Scalable Financial Coaching appeared first on Center for Advanced Hindsight.

“On-Demand” Work Woes

admin — Wed, 08 Jun 2016 15:26:57 +0000

By Wendy De La Rosa, Kristen Berman and Dan Ariely – Common Cents Lab, Duke University

As the middle class shrinks and real wages have been steadily decreasing, the economic lives of low- and middle-income families in the United States have been getting more precarious and difficult. The Economic Policy Institute reported that real wages for low-income workers have decreased 5 percent from 1979 to 2013. And according to a recent report by the Pew Research Center, middle-income Americans are no longer the majority—the first time this has happened since 1971.

To make ends meet, many have turned to the “on-demand” economy. The on-demand economy provides workers with supplemental income, which many desperately need. It also in theory allows workers the flexibility to set their own work schedules. As a result, the on-demand economy is expected to grow significantly. According to Intuit, the on-demand labor market will increase by 18.5 percent over the next five years. An analysis by the Bay Area Economic Institute showed that the number of annual filings of Form 1099, the form used to report contractor income, has increased by 40 percent since 1989, with a considerable spike since 2009.

The on-demand economy can provide either full-time or supplemental employment, so it is important to understand what role it plays in its participants’ financial lives. In a study conducted by Common Cents (a financial decision-making research lab funded by MetLife Foundation) and Payable (a platform for contractor payments, benefits and tax tools), more than 64 percent of participants were contracting part-time. This suggests that such workers contract as a means to supplement existing income.

With these facts in mind, it is important to ask to what extent American households will actually benefit from the on-demand economy.

Do 1099 jobs provide “flexible” hours?
Unlike traditional employees, independent contractors can often choose their work hours. They decide how long and when to work. However, while the on-demand economy is still relatively underresearched, a 2015 report by Request for Startups suggested that contractors’ working hours might not be as flexible as assumed. When this report analyzed ride-sharing contractors, it found that the top factor influencing work schedules was “demand” and not “supply,” suggesting that these contractors worked not when they wanted to, but when there was demand from passengers. More importantly, these ride-sharing contractors reported working different hours and longer hours than their ideal work schedule.

Do 1099 jobs provide a meaningful increase in income?
Aside from working less-than-ideal schedules, many contractors might not be earning enough. In the Common Cents study with Payable, full-time independent contractors self-report a median income of just $20,000 a year. This level of income is far below the U.S. median personal income of $28,851. And the picture is of course very different for those who were part-time contractors. Their median annual contracting income was $6,000.

Along with lower income, the study found very high levels of income volatility. Contractors reported that their income could vary by a factor of 10 from one month to the next. Imagine how difficult it would be for anyone with such large income swings to budget for expenses or effectively manage their financial life. To add to this complexity, taxes from contracting income are not automatically withheld. Independent contractors have to track their tax liabilities accurately and take the initiative to set aside part of their earnings in anticipation of April 15th. On top of that, workers who earn more than $3,000 in contracting income should pay quarterly taxes. Yet the Common Cents/Payable study found that only 16 percent of contractors filed quarterly taxes. Eighteen percent did not even know what quarterly taxes were, let alone pay them.

The tax-withholding issue, at least, appears to be among the more addressable problems created by the complexities of the on-demand economy. In one study, Payable found that more than 47 percent of participants expressed interest in a tax-withholding tool, which allows contractors to automatically withhold a portion of income and set it aside for taxes. But many of the other financial challenges associated with contract labor remain more difficult to tackle.

In short, with its tax-reporting burdens, income streams that are both low and also very erratic, and unpredictable and potentially difficult working hours, it is clear that contracting work may not be the panacea for the struggling middle class. It is also clear that as the on-demand economy grows, there will be a corresponding growth in demand for financial tools that can help people navigate its complexities.

You can find the original article here

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Saving By Spending

admin — Thu, 31 May 2012 14:09:40 +0000

This week, I visited a camera store to order two enlarged prints as a gift. I don’t order photo prints very often; in fact, I’m not sure that I have ever ordered prints aside from graduation photos. As I was making my purchase, the friendly, middle-aged woman who had been helping me asked whether I wanted to become a store “member.” I learned that for only 13 dollars and change, I could save 10% on purchases at the store for the next year, including around five dollars on the order I was purchasing. (I asked whether this discount applied to cameras. It did not.) After fleeting consideration, I explained that I did not think it was likely that I would be buying more prints in the next year, and hence membership was not a worthwhile purchase for me.

To the friendly saleswoman, this did not seem be a satisfactory answer. She continued to push the membership offer, emphasizing the five dollars that I would be saving. “I don’t know about you,” she said, “but I’m someone who likes saving money.”

As I walked from the camera store to my car, I couldn’t help but contemplate this saleswoman’s comment. Did she actually believe that purchasing a camera store membership would benefit my bank account in the long run (as she appeared to), or was she simply a loyal store representative, eager to make additional sales (which seemed more likely)? Either way, her comment reflected a “save by spending” mentality that permeates modern-day America.

Membership programs and customer reward programs that charge an initial fee are prime examples of the “save by spending” creed. The customer is presented with various opportunities for future discounts, provided he or she coughs up money for a membership. As in my camera store situation, the membership offer is usually presented right before purchase, and the amount saved on the purchase itself is highlighted by the salesperson. The customer is forced to decide on the spot whether he or she would like to join.

Membership programs are rather curious in light of the established research finding that, in general, people will settle for less money if they can have it immediately – a tendency psychologists refer to as temporal discounting. (Think Money Mart loans or pawnshops.) In contrast, joining a membership program means foregoing money now for the possibility of earning that money back later on.

There are several reasons these programs may work. First, they force the consumer to project the likelihood of future purchases in a biased setting. People are notoriously bad at predicting the future; when buying an enticing summer novel at Barnes and Noble, surrounded by other books, one is more likely to consider spending money on books than on the variety of other products out there. Second, when presented with the membership program, people may experience mild social pressure from the sales associate. Third, if people are making their purchases with credit cards, they’ll be more willing to slap on an additional membership purchase; research attests that using credit cards makes people spend more, compared with cash.

Last but not least, the feeling of saving money is just plain rewarding. We know that money is valuable. At the same time, we don’t want to save by foregoing that sparkly new iPhone accessory. Membership programs offer us the opportunity to have our cake and eat it too – to experience the joys of saving and spending at the same time. And I’m guessing this makes companies pretty happy too.

Of course, membership programs aren’t the only example of our tendency toward saving by spending. Who hasn’t relished in the experience of buying a product at 50% off, focusing on that 50% that they have magically “earned”? I know I have. This may be part of the reason that the average American has half as much personal savings as personal debt.

Thank you, kindly saleswoman, but I will simply pay for my photo prints this time.

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