Behavioural principles applied to financial services

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When I was a child in Mexico, Sundays were special not just because of family gatherings but because my grandfather would give us a small amount of money, a practice known as 'Domingo.' Although this was intended to teach us the value of money, it never explained the concepts of saving or effective financial management. Fast forward to my teenage years: I landed my first job and, soon after, got my first credit card. Within six months, I was buried in debt, a situation so dire that my father had to intervene, regretting that he hadn't taught me proper financial habits.

Today, as an adult who only started saving and investing a few years ago, I've realized that my story isn’t unique. In the UK, three quarters (73%) of the population fall below the financial literacy benchmark. In Mexico, the scenario is even grimmer, with 65% of the population spending more than they earn, a direct result of inadequate financial literacy.

This gap in financial literacy is not only detrimental to individuals but also to financial institutions that benefit from having informed, engaged customers. Behavioural science offers tools that can bridge this gap by helping banks design financial education and engagement strategies that are effective. Here are three behavioural principles that can reshape financial education:


1. Relevance and simplicity: When I received my first credit card, I was given a booklet filled with irrelevant information that I obviously didn’t read. Financial education should avoid overwhelming consumers with technical details and instead focus on delivering succinct, relevant information that resonates with their actual financial behaviours and needs.

2. Personalization: At 18, living with my parents, I had the expenses typical for someone my age yet limited financial independence. The credit card I received seemed designed for someone more financially independent. Financial education programs should mirror the real-life financial decisions people make.

3. Engagement beyond information: The provided materials didn't resonate with me due to their lack of relevance to my life stage and interests. True engagement transcends mere information sharing; it's about creating tools and programs that motivate and support lasting behaviour change. Crucially, the main challenges often lie in motivating user interaction with the product and exploring its full range of services.

This approach, rooted in understanding user needs and psychology, enables behavioural science to enhance financial literacy and drive emerging technologies. For instance, open banking offers customized financial advice based on aggregated data, while generative AI creates personalized financial simulations to clarify long-term financial impacts. 

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