Shame Fame and Video Games

Banking on the Poor attended the Microfinance USA conference again this year. It was held in my old neighborhood in New York City which I help “gentrify” when I moved to New York to begin a corporate career more than 30 years ago. From the conference center I could look across the street and see our old apartment which now sprouts an urban forest on the roof where I had installed a hot tub. How ironic that I would return for a conference dedicated to finding solutions to poverty!

I think there is a good blog piece in that irony which I will work on for posting later. However, as with last year I was invited to blog on some of the conference sessions. Here is the first which dealt with new ways to engage the “wired generation” in financial literacy.

In the break-out session on “Designing Products that Promote Financial Capability” participants outlined efforts to use social networking technology and video games to change consumer behavior related to personal financial decisions. Rob Levy of the Center for Financial Services Innovation (CFSI) moderated the session which addressed the apparent ineffectiveness of traditional financial education programs to improve the “financial capability” of American consumers.

According to a recent study by the CFSI, 49% of U.S. households are unable to meet monthly expenses from current income despite years of financial literacy training. Furthermore, the CFSI study rated U.S. consumers deficient in other factors they define as key determinants of financial capability such as using a budget and having the ability to select and manage basic financial products and services.

The CFSI concludes that to be effective in promoting financial capability practitioners must “think beyond the classroom” and design programs that are relevant, timely, actionable and ongoing. Financial literacy education must be linked to access to financial services, leverage technology, incorporate the principals of behavioral economics and utilize cross-sector partnerships.

Innovations for Poverty Action (IPA) has been engaged in the international sector since 2002 and recently turned its attention to the issues of high debt, low financial resiliency and low savings in the United States. Brooke Berman explained that IPA sees the problem of low financial capability in a broader social context. That is, behavior considered rational for the individual (e.g. maintaining a reserve of savings) is not often viewed as optimal from a social perspective.

IPA solutions stress such techniques as commitment contracts and automated reminder messages that, in effect, shame consumers who spend rather than meet announced savings targets. This is a similar approach some weight-loss programs or anti-smoking campaigns work to get participants to change unhealthy behavior. Ms Berman described the “Borrow less Tomorrow” (BoLT) program in which participants identify debt they know they should pay down, commit to a repayment schedule and enlist their social network contacts to provide peer pressure to achieve their goals.

Doorways to Dreams (D2D) has developed a number of video games designed to teach adults about financial capability and help them change financial behavior. Tim Flacke said that D2D’s approach is predicated on their belief that poor financial behavior is a “demand side problem”—people are inherently resistant to changing behavior. D2D has produced what they describe as “financial entertainment” which differs from traditional financial literacy training by being engaging rather than earnest, targeted rather than comprehensive, interactive rather than static and accessible rather than restriced. Their games are available at www.financialentertainment.org.

Piggymojo, works at behavior change by making savers “heroes” to their partners. Designed to be used by couples, the program turns impulse saving into a better “feel good” experience than impulse spending. The founder of Piggymojo, Jayson Halladay, said that a family with an annual income of $45,000 typically spends 20% of their income, or $8,000 on impulse, inessential purchases. Piggymojo rewards people when they make a decision not to spend by sending a text to the other half say that he/she, rather than buying something, put the cost of the purchase into a joint savings account. The program tracks the respective “saves” of each partner and creates an image over time of the goal the couple has mutually agreed to save for.

These approaches to improving financial capability are clearly not your father’s kind of financial literacy training. Designed to appeal to the “wired” generation it will be fascinating to see if these innovations take hold and produce a more fiscally responsible generation.