Five principles for designing consumer financial products that change financial behaviors.

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Forget Financial Literacy, Design for Advocacy Instead

Teaching financial literacy doesn’t work 
Teaching people about finances may not change their spending or savings behaviors in any meaningful way. Instead, we should advocate for them by applying lessons from behavioral economics to design smart money behaviors directly into the experience flow. 
 
Financial literacy means having the knowledge to make informed decision about money in areas like saving, investing and budgeting. Common sense, and many academics, would say this skillset has the power to improve financial stability for just about everyone.
But what if having more knowledge about financial principles had no impact on one’s financial behaviors? <a href="https://www.financialbuildingblocks.com/assets/The%20Effect%20of%20Financial%20Literacy%20and%20Financial%20Education%20on%20Downstream%20Financial%20Behaviors.pdf" target="_blank" rel="noopener">One Group</a> analyzed 188 prior financial literacy studies and, when controlling for psychological traits, found that financial literacy efforts explain only 0.1 percent of the variance in financial behavior. So, what’s going on here?
People are not rational financial decision makers  
Behavioral economists have long known that people are not rational beings and have trouble making decisions in their own best interests. We as a species have difficulty with self-control. We choose short-term rewards over our long-term goals. Even though we may know better, we still practice irrational financial habits. This lack of reason shows up not only in our finances but also our behaviors around eating, exercise, drug use, relationships—the list goes on.
Advocate by designing choices for the irrational mind 
Let’s imagine we want to increase the likelihood that someone chooses a smart financial option, like contributing to a savings account or paying a bill on time. The following principals taken from lessons in behavioral economics can guide how we design experiences to measurably increase instances of that wise financial option.

Behavioral Economics Lesson: Default Bias. If something is easy to choose or the default option, people tend to choose it.
Design Implication: Design the default choice to ‘opt-in’ users to the smart financial decision, allowing them to opt out as an extra step.
Example: Auto-enrolling employees in a 401K plan is now common practice for the majority of large U.S. companies. <a href="https://money.com/401k-features-employers-can-no-longer-ignore/" target="_blank" rel="noopener">One Study</a> found a 32 percent increase in participation with auto-enrollment and saw 46 percent more participants increase their contributions each year with auto-escalation.

Flip the Default Button

Behavioral Economics Lesson: Design Paralysis. When given too many options, people get overwhelmed and anxious about making the wrong choice—so they choose nothing at all.
Design Implication: Offer a small number of choices, or better yet, make a recommendation.
Example: When deciding on a Medicare plan, seniors are offered a multitude of health coverage combinations to choose from. Learning about Medicare and figuring out the best coverage option is overwhelming for everyone. But a <a href="https://www.medicare.gov/oopc/" target="_blank" rel="noopener">cost calculator tool </a>on Medicare.gov simplifies things by estimating out-of-pocket costs for coverage, essentially making a cost-based recommendation.

Offer Recommendations Over Options

Behavioral Economics Lesson: Availability and Status Quo Biases. People consider information that is most vivid and recent, not what’s most relevant. They also stick to what they’ve always done in the past, no matter the prior result.
Design Implication: Reframing is a technique used in cognitive therapy to help patients see a situation with fresh eyes. In design, we can reframe choices in terms of visual emphasis, interaction flow and language to capture user attention and bump them out of old habits. Present the option right up front in the workflow with a standout visual. Remove up-front education and instead provide guided choice pathways with action-oriented language such as ‘When would you…’, ‘How much would you…’ or ‘Let’s get started with…’.
Example: <a href="https://www.lemonade.com/start/1" target="_blank" rel="noopener">Lemonade</a>, a home and renters insurance provider, reframes insurance package choices by stepping users through a set of easy questions. Their workflow starts with a friendly action-oriented message: ‘Hey! I’m Maya. I’ll get you an awesome price in seconds. Ready to go?’. Users start by just entering their name, a simple way into the process of making a new insurance decision.

Reframe the Option

Behavioral Economics Lesson: Lack of Self Control. People do what feels good now, not what’s best in the long run.
Design Implication: Make the option a mandatory part of the process.
Example: Most high school students qualify for federal financial aid to help pay for college, but up to 30 percent are still not applying. In 2015-2016, <a href="https://www.savingforcollege.com/article/millions-of-students-still-fail-to-file-the-fafsa-each-year" target="_blank" rel="noopener">two million students</a> would have qualified if they had only completed the Free Application for Federal Student Aid (FAFSA). To remedy this, states have started to require high school seniors to complete the FAFSA before graduation, making it a part of the process. FAFSA application rates by high schoolers increased by more than 25 percent in Louisiana after the state <a href="https://www.insidehighered.com/news/2019/07/10/texas-becomes-second-state-require-fafsa-completion" target="_blank" rel="noopener">implemented the requirement</a> last year.

Make the Option a Step in the Process

Behavioral Economics Lesson: Loss Aversion. People are more motivated by the prospect of losing, than by making gains.
Design Implication: Show people what they are losing by doing nothing, like what they won’t have or an added negative consequence.
Example: <a href="https://www.hicharlie.com/" target="_blank" rel="noopener">Charlie</a>, a money savings messaging service, alerts users to potential negative consequences such as likelihood of an overdraft fee coming up. It also suggests the action to avoid the problem from occurring, like moving money into the account.

Highlight the Negatives of NOT Selecting the Option

The human brain is susceptible to many cognitive biases that hinder our abilities to make rational financial decisions. As designers, we have the responsibility to build around decision-making shortcomings by creating straightforward pathways to choices that are in the users’ best financial interests.

David Zemanek

Caroline Swingly

David has spent his career working on the front lines for product and solution companies. It started with banking, financial market solutions, technology, deployed and SaaS software solutions, integration technologies, and now in the realm of innovation consulting with frog.

Caroline is a Senior Strategist at frog San Francisco. Teams look to Caroline to frame up opportunities, connecting the dots between research and concepts. She crafts visions for how customers might interact in the future, why those interactions are unique and memorable, and what we can do next to bring transformational experiences to market.

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A human touch combined with well-designed AI bots will drive increased trust and customer success in financial advice outcomes.

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The Future of Financial Advice

For as long as we’ve had systems of money, we’ve had systems of people telling us what to do with it. Today, financial advice is a $70+ billion dollar market and growing, but emerging technologies like AI and machine learning are threatening to disrupt more traditional incumbents. While many think simply adding a digital product or service with a chatbot can replace the thoughtful advice of a human advisor, the real winning formula will be those who can cleverly combine personality matched chatbots to drive a better human to human advice offering.
The way advisors are typically connected to clients is based on either referral, geography or random assignment. But one-sized-fits-all advice does not work in an age where customer expectations are high, and different people respond better to different communication styles. Given the emotions around money, it makes sense to match advisors and advice to our clients’ personalities. So imagine intelligent chatbots who can adapt their behavioral style based on client’s preferred and most effective communication style. By designing effective chatbot-to-human ecosystems, firms can gain insights to better understand their clients and make the right match when assigning human advisors.
Let’s examine these chatbot archetypes across three basic segments of financial advice: Spending and Savings, Investments, and Tax Law and Estate Planning.

<h2>Spending and Savings</h2>
For those who are looking for help with overall budgeting, financial planning or developing health financial habits, the key players can span from more traditional financial planners or debt consolidation/settlement/reduction firms to book authors who’ve made a name for themselves giving financial advice. Dave Ramsey, Suze Ormon, and George Clason are all examples of contemporary financial advice gurus, but this tradition of advice spans all the way back to Benjamin Franklin and his timeless adage, “Beware of expenses, a small leak will sink a might ship.”
There’s a ton of wisdom out there for budgeting and savings, but the key is to get the personality and voice matched to what will be most effective with a particular customer.

Services like Mint are already moving in the right direction with the ability to allow you to budget, set target spend limits and be alerted when you break your budget. We already have chatbot services that basically serve as a voice search command for asks like what’s my current checking balance, how much did I spend on food, or when is the next cable bill due. With up-to-the-minute advice on budgeting and saving built in, chatbots will begin to consult people on everything from their rate of savings, to optimizing their entertainment spending. Let’s look at three potential characters/voices that our AI chatbot can take on:

The driver is like a tough coach or mentor. Highly pedagogical, this chatbot will be direct in scrutinizing your spending, and take on a stern tone when you’re exceeding the limits on any part of your budget. In extreme cases, it may even contain a feature to take over your accounts to lock down your spending, or create some level of friction for the user to unblock their own spending.

The Driver –

The supporter is the positive coach and this voice can be used in conjunction with The Driver to play a good cop/bad cop game where effective. The supporter is all about helping you get up when you’ve stumbled on your budgeting and savings goals. This is a great voice for those who respond well to positive motivation.

The Supporter –

The Empathizer’s tone is one of understanding and playing back. Some folks like to come to their own conclusions and the Empathizer allows them to do just that. By playing back your thoughts, the general idea is that you arrive at the solution yourself.

The Empathizer –

<h2>Investments</h2>
Today’s investment advisors take many forms, including that of a mutual or index fund that provides a basket of investments and charges a management fee; brokerages who provide current day “robo-advisors” primarily around risk tolerance, asset allocation and potentially tax-loss harvesting; and good old fashioned financial advisors, who provide financial advice for a fee. The main areas of value derived from these services are capital preservation and growth, low cost investment options, dynamic asset allocation and financial planning. We already have many automated elements one could consider “advice” in the form of automatic withdrawals and 401k plans, to Target Date Funds that automatically change your investment allocation and Robo-Advisors that match client risk profiles and goals.

Investing behaviors range from the swing trader to the self-directed long-term investor, to the 100% index ETF client. Two potential characters/voices for these customers could be:

The north star voice is all about supporting the long-term plan, especially when the market enters volatile periods. The buy and hold investor suddenly gets worried when talk of recession is in the air and may want to raise cash. Similarly, their buy and hold strategy may look boring when they hear of friends making a mint in bitcoin, internet startups or high flying tech companies. The North Star works for investors whose nerves are easily rattled and for poor decision-making can cause them to make bad decisions.

The North Star –

Some people have both the mental makeup and ability to trade successfully, but they still can get caught up with their ego from time to time chasing stocks or the market. The mentor is all about helping keep a perspective on their trading, pointing out past good and bad behavior, and helping the client stick to an investment/trading discipline and investments that fit their stated criteria.

The Mentor –

<h2>Tax and Estate Planning</h2>
For the nuts and bolts of minimizing of tax liabilities and reducing wealth transfer fees, most turn to tax and estate planning lawyers, advisors or firms.
Given the tax overhaul, the reduction in SALT allowance, the new limits in the mortgage interest deduction and the changes to pass-through income, there’s a lot for individuals to keep up with and to plan for. But if financial institutions have a full picture of their clients’ financial situation, there’s an opportunity to offload the majority of basic tax and legal advice to bots, including warning a client of the pros and cons of any particular taxable event they might engage in. Keep in mind that this type of help can be very expensive and potentially available to only a few who can afford (Robo-advisors are already including tax-loss harvesting features).

Tax law can make mincemeat of mere mortals who don’t understand the code.The client is looking for facts and a perspective that seems to know all. Enter the Guardian Angel. Seemingly sent from heaven, the Guardian Angel evokes trust and respect, and a sense of limits known. It also has knowledge of the financial institutions own specialists and knows where to refer questions or interpretations that require a human conversation.
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The Guardian Angel –

The organizing assistant helps clients feel comfortable with financial institutions processes and gathers the necessary information for the client’s upcoming appointment with a firm’s human tax. The voice and tone are patient and warm, yet highly efficient.

The Organizing Assistant –

Potential characters for estate planning can be:

Creating a great bot to interact with your customers will not be the singular challenge. In the words of famed piano player Artur Schnabel, the bots may play all the standard notes quite well, but we need human beings for those moments when reading off the sheet music is inferior to riffing off the client’s rhythm, handling emotional situations and providing advice where clear answers don’t exist.
Designing for success in these scenarios is about designing for the inevitable failures of our bot characters and not leaving our clients in dead ends or recurring non-helpful loops. Bots have boundaries, and many people will only trust a bot up to a point. There will be moments where bots—even with all the knowledge they have—fail to answer a clients’ questions, or even to help them think through more abstract issues. The real differentiator is ensuring that the transition between bot and human happens elegantly and quickly.

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David Zemanek has spent his career working on the front lines for product and solution companies. It started with banking, financial market solutions, technology, deployed and SaaS software solutions, integration technologies, and now in the realm of innovation consulting with frog.
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It’s time to start incorporating gaming principles to drive financial inclusion and smarter money habits.

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Winning Big with Gamification of Fintech

It’s not uncommon for people in the US to think of money as a game – you win some, you lose some. And like most games, there’re always a select few who seem better at stacking their chips. Having said that, banking innovations such <a href="http://www.savetowin.org/">prize-linked savings accounts</a>, essentially savings accounts where instead of interest, all customers who deposit a minimum amount of money are entered to win a chunk of the aggregated unpaid interest, is turning out to be one method of enticing those unmotivated by the concept of compound interest, to actually save more. In addition to early results proving these to be effective, they also do not put people’s principal at risk. In fact, these “save to win” accounts have been legal in Oregon since <a href="https://nwcua.org/2015/05/14/oregon-legislative-update-prize-linked-savings-approved-by-legislature/">2015</a>. However, in our discussions, we’ve had members of the banking industry dismiss these concepts linked to gaming outright, preferring to focus on financial inclusion instead. But if concepts like prize-linked savings accounts get people who didn’t save before to start saving, it sure sounds like inclusion to us.
Warren Buffet once said, “The stock market is a device for transferring money from the impatient to the patient.” We have enough intellectual (read: slow thinking) solutions to a fast thinking problem (impulsive financial behaviors), as <a href="https://www.nytimes.com/2011/11/27/books/review/thinking-fast-and-slow-by-daniel-kahneman-book-review.html">Daniel Kahneman</a> might put it. Right now, with 74% of people labeled as “<a href="https://www.aplaceformom.com/blog/americans-are-not-ready-for-retirement/">behind on their retirement planning</a>” we continue to run the risk that people don’t learn that they aren’t good at playing the financial game with the current structure most banks give us, until they have run out of time to build enough wealth for retirement. For all the talk of “gamification” coming to the rescue, there is little evidence that gamification is being used beyond helping to sell more credit cards or other loan based products. So, we thought we’d look at a few possible financial products and services that could leverage gaming principles to get more people saving greater amounts of money.
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<h2>Give People An Avatar</h2>
Popular games like Smite allow people to create their own avatar image. These avatars can be unlocked in a number of ways, including the completion of basic tutorials or other tasks. They can also be bought or earned with points or promotional codes. Avatars are fun, and another way to link saving and investing (typically not thought of as exciting or fun) to social elements that have become so popular in gaming. And what’s wrong with tweeting out that killer new armor you earned, even if it was through something so much less whimsical like taking an online class on protecting principal?
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<h2>All For One, And Savings For All</h2>
Encouraging team play is a great way to growth hack larger audiences. Of course, it’s difficult to get an entire group of friends to use one bank, but if people could participate in the same “game” across financial institutions to earn points for team play, it just might work. Even better if those points are fungible across other mediums, similarly to how gaming provider <a href="https://xsolla.com/">Xsolla</a> has options to turn all sorts of equity into points. There are also ways to tap into the team mentality when it comes to meeting savings goals. Banks could offer competitive or performance-based interest rates to groups so that the more goals met or money saved, the bigger the savings for all. This is also a win for the banks, who will net greater interest on additional cash people save.
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<h2>Halt The “Tilt”</h2>
“Tilting” is a gaming term used to describe a state of being overly aggressive and making bad choices—it’s often used in betting games like poker, but actually originates from pinball machines. The financial industry already has solutions for “tilting” in some form or another. A “stop loss” trigger helps investors sell a stock automatically at a small loss before it becomes a larger one. A gamified financial institution may help customers become aware of “tilt” behavior and offer solutions to curtail poor spending behavior. Bots like <a href="https://www.frog.co/work/personal-finance-one-text-time" target="_blank" rel="noopener">Charlie Finance</a> could be employed to help. Designing the game for success is great, but not if it isn’t also designed for failure scenarios.
Appealing to people’s intellectual brains is great in theory, but the reality is that many of us are driven by impulsive behavior that tends to severely undermine attempts to foster healthier financial behaviors. Gaming offers solutions to create a financial services experience that leverages our impulsive fast thinking to create better behaviors. If we’re going to improve savings habits, we need to start creating services with non-standard, out of the box solutions to building financial literacy and wealth.

How financial institutions can deliver connected, intelligent services to help their customers be happier, healthier financial citizens.

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Mind, Body & Wallet

According to a 2017 <a href="https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf" target="_blank" rel="noopener">Fed Report</a>, 40% of adults still can’t cover a $400 emergency expense, and 60% have little to nothing saved, putting them at risk of retiring with no financial security. For all the work that we’ve done to try and help people achieve the American dream, we’re clearly failing. It’s time to open the aperture and realize that financially healthy behaviors are interrelated with healthy lives. To this end, financial services institutions should be leveraging external connectivity, AI and machine learning, not just to serve financial needs, but to create holistically healthy behaviors to help their customers be happier, healthier financial citizens, while also linking itself to the <a href="https://www.forbes.com/sites/pamdanziger/2018/02/20/emerging-brands-grabbing-share-of-the-retail-wellness-market/#722c67714173" target="_blank" rel="noopener">3.7 trillion-dollar wellness industry</a>.
We are experiencing a moment where people are more connected and engaged than ever. It’s about time that we find a way to use that constant engagement to cater to human well-being, and not simply to our smartphone addictions. With a generation of millennials now growing up and beginning to contend with financial well-being of their families, how can the financial services industry help these customers achieve their financial goals without it feeling like all stick and no carrot?
<blockquote>Consumers may be engaged with your brand, but the long game is about making their lives healthier. Engagement is your metric, but it’s not the desired outcome of those you serve.</blockquote>
Simply going after financially healthy behaviors is too myopic because finances are only one part of the picture. People are complex beings. We are not mere numbers on paper and our finances do not exist in a vacuum. If we want to help create financial health, we need to look at financial services within the lens of the wider ecosystem of what brings greater health and stability to people’s lives.

<h2>Interventions To Balance Body, Mind And Finances</h2>
The answer may lie in reimagining the tools we use for financial services. Building ecosystems of fin-tech that utilize AI, machine learning and connected services can offer experiences that help people increase their health both financial and otherwise, which will in turn increase their share of wallet. In this sense, technology is used as a force for good, removing the burden of negotiating finances and freeing people up to enjoy their lives to the fullest.
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<h2>A Healthy Bottom Line</h2>
Just imagine how an ecosystem like this might work: Instead of a traditional banking app, you have a fully integrated AI assistant, which may be licensed from any of the major providers by your financial institution. Let’s call it, “Assistant.”
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<h2>Planners Are Achievers</h2>
You wake up in the morning to the buzz of your smartwatch and step out of bed. When you check your smartphone, Assistant has a simple message for you, “reflect on what you want to accomplish today.” This is because your bank knows that having a plan and sticking to it can help you achieve your financial goals—a <a href="https://www.psychologytoday.com/us/blog/the-moment-youth/201803/goal-setting-is-linked-higher-achievement" target="_blank" rel="noopener">2015 study</a> found that participants who wrote down goals were 33% more successful. Throughout the morning, Assistant continues to lead you through a guided meditation based on your sleep data, plays music based on your preferences and provides menu choices based on the healthy ingredients in your fridge. With no chance to surf news or social feeds, Assistant guides you on a healthier start to your day.
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<h2>Nourishing Partnerships</h2>
You decide to meet a friend for lunch, but rather than picking a spot, Assistant recommends a restaurant based on the data it has collected about your preferences and health plan. You enjoy your lunch, and in exchange for clicking on a rating following our meal, the bill is slightly discounted. This is because your financial institution has partnered with thousands of restaurants and food shops like this one to create <a href="https://www.mckinsey.com/industries/financial-services/our-insights/data-sharing-and-open-banking" target="_blank" rel="noopener">APIs</a> that share the small amounts of data needed to recommend the right place at the right time.
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<h2>Joy Redirected</h2>
That night you are browsing the web and doing some online shopping at home. You come across a pair of jeans you like and add them to your cart. But before you can ‘check out,’ Assistant advises you that since you’re saving for a family vacation next month, perhaps it’s best to hold off. You agree, and a percentage of the cost is then added to your vacation budget. This kind of <a href="http://freakonomics.com/podcast/when-willpower-isnt-enough-a-new-freakonomics-radio-podcast/" target="_blank" rel="noopener">behavioral economics</a> removes the burden for unpleasant things like traditional budgeting, and allows people to learn new behaviors around spending and saving.
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<h2>Removing Cognitive Load By Leveraging Data, Ai And Bots</h2>
This proposed financial service tracks both health and spending in order to make precise calculations on how to best advise the customer, because as we know from conducting extensive human-centered design research, all aspects of our complex modern lives are inextricably intertwined. This data, which is passively collected over the course of a day, is then able to help the customer make smarter decisions about how they spend. If after a month they’ve spent 4% less on non-essential items like clothing, the Assistant will automatically put that percentage towards savings, which can be set up in discrete funds for different goals, like buying a house or taking a vacation. In this way, the data collected is taking the burden off of the customer to make those decisions consciously. Rather than agonizing over what to spend money on and what to cut down on, you can answer a series of empathetic questions about what brings you joy, what are your and your family’s needs, what makes you feel healthy, and the service does the budgeting for you.
<a href="https://www.hicharlie.co/">Charlie</a> is one service that is breaking into the AI game in order to provide more empathetic responses to help people save. Rather than an app or an AI assistant, Charlie functions on a messaging bot system—in either SMS or Messenger. The idea is that you have a conversation with Charlie, tell it your goals and needs, and it sends you texts with gentle reminders to stick to your plan.
frog can help banks take this idea one step further by designing products and services that take the cognitive load off their customers by working in the background to inform a more holistic view of financial wellbeing. For the financial services sector, there are many benefits. Having customers who are more financially healthy brings higher average savings and investing balances. These clients also typically pay their loans on time and do a better job of sticking to a budget.
In total, by collecting information about the complexity of our lives, banks would be able to provide customers with the kind of insights that would allow them to make smarter, healthier choices for years to come. These services would create value for the customer by helping them make healthier, more informed decisions in order to save enough for a few rainy days (should they happen), while not cutting out the things that bring them joy.

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David Zemanek

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