Higher earnings alone are often not enough to help families escape poverty. Assets—such as a home, business, or savings account—provide an important buffer against unexpected challenges that would otherwise threaten financial security. Many families recognize the importance of assets but have trouble accumulating savings; many organizations offer programs designed to make asset development easier but struggle to keep clients engaged. How might a behavioral approach help us design solutions to these problems?
The Behavioral Economics Technical Assistance (BETA) Project was a collaboration between ideas42 and the Corporation for Enterprise Development (CFED) to help asset-building organizations apply insights and lessons from behavioral economics to their program designs. With funding from the Citi Foundation, the project sought to increase the scale and impact of organizations helping individuals build financial capability, savings and security by connecting high-capacity programs to innovative researchers and experts.
The BETA team set out to design and test behavioral solutions through real world products, processes, and services. In 2013, the team applied a behavioral diagnosis and design methodology to create and test a set of solutions to behavioral challenges at three asset-building organizations: Accion Texas (TX), Cleveland Housing Network (OH), and Neighborhood Trust Financial Partners (NY).
At microlending agency Accion Texas, staff reported that borrowers had difficulty making consistent, on-time loan payments and were regularly charged late fees as a result. The BETA team’s research uncovered several behavioral challenges at work: for instance, borrowers tended to stick with the default payment date even when it was not ideal, and to be deterred by small barriers associated with making payments. In response, the BETA team redesigned the monthly statement Accion sends to each borrower and created a system of reminders that prompted clients to make a deposit or check their account balance before a payment due date. In a randomized controlled trial, these changes reduced the number of fees charged for insufficient funds by 25% among borrowers in the treatment group.
Findings like these speak volumes to the potential for asset-building organizations to make small, inexpensive program adjustments inspired by behavioral economics. All three partner organizations opted to continue using some form of the intervention tested at their site on a more permanent basis, and the BETA Project team continues to disseminate its findings to others in the asset-building sector.