José Alexandre C. Vasco Superintendência de Proteção e Orientação aos Investidores

Financial Education and Behavior Change – the missing link.

“For every complex problem there is an easy answer, and it is wrong”. (Henry Louis Mencken - american journalist 1880-1956)

NATIONAL STRATEGY (ENEF)

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National Committee for FE (CONEF)

Educational Support Group (GAP)

Schools

Federal Decree # 7.397, of 2010

Government

Sectoral Programs*

Cross-sectoral programs

Schools Adults

The Brazilian Association for FE Civil Society

*Credit, Insurance, Investments etc.

6 States Volunteered Municipalities 227 Schools 891 Students 26.981

Financial Education in Schools Pilot Project (high school students)

Impact Evaluation Dimensions: Cognitive, Attitudinal and Behavioral

• “Think before acting” Reflexive Autonomy

• Autonomy in the face of others Emotional Autonomy

• Ability to make decisions independently and to follow through on these decisions with actions

Functional Autonomy

*APPLICATION OF THE CAED AUTONOMY SCALE TO ASSESS THE IMPACT OF FINANCIAL EDUCATION . Micarello, Hilda; Melo, Manuel Palacios, Burgos, Marcelo B.

• Financial Literacy Test > financial proficiency scale. • Behavioral Questionnaire: to measure actual financial behaviors and

future financial attitudes and behaviors (intention to save) > 2 scales: • (1) Autonomy scale for financial matters (tridimensional)*:

*NOOM, M. J., Dekovic, M., y Meeus, W. (2001). Conceptual analysis and Measurement of Adolescent Autonomy. Journal of Youth and Adolescence, 30, 5, 577-595.

*Predicting and Changing Behavior – The reasoned action approach. Fishbein, M.; Ajzen, I. (2010)

Behavioral Questionnaire (cont.): • (2) Intention to save: theoretical model > Theory of Planned Behavior (TPB).

TPB was introduced in 1967 (Theory of Reasoned Behavior - TRB), motivated by the fact the then existing attitude theories could not predict behavior. Objective: PREDICT and UNDERSTAND human behavior. Subject areas: weight loss, alcoholism, consumer behavior, voting, financial services etc.

• Algebraic function combining several cognitive predictor variables.

Impact Evaluation Dimensions: Cognitive, Attitudinal and Behavioral

• “In my opinion, saving money is …”

Attitudes towards future behavior

• “My family/friends has the habit of saving…”

Subjective norms and expectations

• “I believe I can save …” Perception of

controlling one`s behavior

Intention Behavior

The impact of the pilot project on student’s financial knowledge was

statistically significant. Significant increases on financial autonomy scores and intention to

save were found. Students improved their savings and spending behaviors (making a

list of expenses, % of income saved etc.). The FE in schools program has the potential to increase national

saving rates.

Preliminary results (World Bank, June 2012)

Financial Education and Behavior Change: a complex problem with no easy solution.

*Report 230 - Financial literacy and behavioural change. ASIC (2011).

Behavior Change (Key findings)*: • "there remains little reliable, conclusive research about whether

financial literacy campaigns and programs work (i.e. whether they result in sustained changes in behaviour and improved financial outcomes).

• Best-practice principles for program and evaluation techniques are still developing, and it is widely recognised that both are inherently difficult.

• In the interim, the established principles of social marketing, frequently used in health and environmental fields, provide a practical big picture framework for financial literacy-based behavioural change initiatives”.

Trans-Theoretical Model of Change A contribution from health programs

• Developed in the 70s (Prochascka and others), integrating different psychological theories, to assist people in changing negative behaviors.

• A multi-stage theory with empirical support. • TTM Identifies:

• multiple stages (5) of behavior change (reach people in different stages: those ready and not-ready to change)

• ten strategies for achieving it at different stages (may be more effective). • Behavior changed: the person has changed the behavior for more than 18

months.

Pre-contemplation

• Not willing to change in 6 months

Contemplation

• Willing to change in 6 months

Preparation

• Willing to change in 30 days

Action

• Started to change (< 6 months)

Maintenance

• Changing (6m<t<18m)

Different strategies and tactics for behavior change at each stage.

The right strategy for each stage? An example.

• Full-colour graphic warnings on cigarette packages are required in different jurisdictions (Brazil, Canada, etc.).

500 thousand people alive in the world today will die ten years before their time, on average, because of tobacco use.

• “At one western HMO*, when administrators discovered subscribers were avoiding action-oriented program they had developed, they decided to go all out to persuade smokers to participate. Their doctors showed a videotape detailling the horrors of smoking and the glories of quitting. The HMO nurses spent an unusuallly long time telling smokers what good medicine for them quitting would be. They followed up with telephone counseling calls pressuring smokers to sign up for the program. 35% of the precontemplators did sign up, but 3 % actually showed up, and only 2% finished”.

*Health Maintenance Organization (HMO)

Changing for Good: A Revolutionary Six-Stage Program for Overcoming Bad Habits and Moving Your Life Positively Forward . Prochaska, J.O., Norcross, J.C., Diclemente, C.C.

Changing habits (the need of the right strategy for each stage)

Precontemplators

Precontemplators*: • In many cases developed an active resistance to change. • At other stages the issue is not whether help should be offered, but what type of help is

best, but ... • with precontemplators, the question often arises whether help is even a possibility.

Sometimes, he or she doesn`t want to change. Wait to intervene until problems become intolerable? Is this ethical?.

• Why? We are born with defenses (developed as we get older): • DENIAL and MINIMIZATION – a person can’t admit to his/her problems • RATIONALIZATION – "good excuses” • PROJECTION – “diagnose in someone else our problems”

• Precontemplation > contemplation stage: • developmental (aging and life-events: marriage, childbirth, retirement, etc.) and

environmental (unemployment, social pressure etc.) forces that urge people to change, or

• Foster intentional change (consciousness-raising about self-defeating defenses etc).. *Changing for Good: A Revolutionary Six-Stage Program for Overcoming Bad Habits and Moving Your Life Positively Forward . Prochaska, J.O., Norcross, J.C., Diclemente, C.C.

Financial education to the Brazilian new middle class as part of the

CVM Strategic Plan 2013-2023 (to be released - second semester) Go beyond the FE programs in place (website, e-learning, booklets,

courses, awards, social media). Behavior change social psychology theories and economic

psychology/behavioral finance will be embedded in financial/investor education programs (youth and adults).

Employ social marketing and the best practices in program delivery. Target audiences:

Population: shaping social norms and attitudes towards saving/investing behavior (social media, national campaigns etc.).

Groups : promote behavior change (ex.: indebted subgroups, poor urban communities etc.).

Financial and Investor Education at CVM

Desired behavior change: Increased saving and investing

Target Audience: Individuals with income with no norms of saving nor investing

Key Implications:

• Focusing on an individual’s Perceived Behavioral Control is important, but not sufficient • Negative attitudes toward savings and subjective norms of spending will override the PBC • The subjective norm must be that “saving and investing is smart” • Social attitudes toward saving and investing behavior must be positive

Application:

CVM should focus on breaking down barriers to saving and investing (negative social norms and attitudes) (FINRA Foundation)

Use aspirational themes and language (Australian Model) Partner organizations should focus on delivering skills and competencies for effective saving and investing

behavior. CVM’s programs in schools is an example of one platform from which to establish positive norms and positive

attitudes towards saving and investing. Creating positive norms and attitudes will require effective social marketing

Intention

Attitude Toward Behavior

Subjective Norm

Perceived Behavioral

Control

Desired behavior change: Reduction of cognitive biases in decision making

Target Audience: Emerging middle class

Key Implications:

• Gains vs. Losses • Investors prefer less risk when evaluating gains, when evaluating losses they prefer more risk in an attempt to limit losses.

Investors should view expected economic value not probable returns. • Investors use heuristics, reference points, and framing to ease decision making

• Heuristics prevent investors from properly evaluating investment decisions. “Rules of thumb” are more likely to be used when there is a knowledge gap.

• Marketing materials should account for cognitive biases by providing targeted and relevant financial information. Attempts to capitalize on reference points should be prohibited.

• Reaching new investors prior to purchase • Psychological and systematic barriers reduce investor’s ability to absorb and utilize educational content. • Reputable partners help reduce barriers leading to better investor decision making.

Solution:

Present investments as economic outcomes not probabilities Specifically address cognitive biases in educational material Partner with banks, non-profits, and community organizations to teach core competencies

June2013: launch of the (CVM/BM&FBOVESPA/State of RJ) National Cultural Contest about saving and investing. Videos (12-14) and writings (15-18). 9 IPADS. Lifespan psychology: learning at the different stages in the course of life

(life ages have different motivational structures and perspectives on learning).

Youth: centers on the development of a personal identity. (“I can’t save”) Letter to parents explaining the learning objectives (for families, not for

schools). Pre-test worked well.

Financial/investor education program to help civil servants to save and them make informed investment decisions (TTM). Different groups: highly indebted + those with financial surpluses.

Financial planning for poor urban communities.

New initiatives

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Obrigado!

vasco@cvm.gov.br CVM’s website: www.cvm.gov.br Investor’s Portal: www.portaldoinvestidor.gov.br “CVMEducacional” :

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