Video: Dr. Dilip Soman’s closing remarks for the 2018 Research Symposium on Financial Literacy

Dilip: We’ve something unusual which is I prepared slides for closing remarks and I don’t know why I did that, but here they are. They don’t look terribly complicated but when I started off yesterday, I was reminded three years ago that we did an event right here at the Desautels Hall on financial literacy in partnership with you, Jane. You and I stood up at that point in time, John Lynch gave us a fabulous presentation at that stage with his meta analyses of the effectiveness of financial literacy programs and he started off by showing a .1% correlation as if to suggest that financial literacy doesn’t work, but that’s probably a very naïve sort of takeaway from that research and we then said, well let’s think about when it works and let’s think about what are the conditions under which it works and one of the things we did say at that point in time three years ago is that we need to think about how we can best harness behavioral science to help identify what it is we can do in addition to financial education, to improve the efficacy of financial literacy and over the last and a half, we’ve come a long way since then. I mean if you can just think back to all of the lovely work we saw presented, it’s absolutely phenomenal.

So what I thought I would do is to give some top line perspectives, some sort of reflection on what I heard and before I do that, I want to start off by talking about the idea that over the last year and a half, you’ve heard lots of examples of people doing stupid things when it comes to finances. They make bad credit choices, they get into debt, they made bad mortgage choices and then I think, these are the same people that went to the moon and invented flight and discovered vaccinations and the theory of relativity. So what the hell is going on? How come people who are really good – I mean we have an amazing society, and human kind has accomplished a whole lot. Why do we mess up in the simple things?

Right, so one simple explanation is that all of this stuff was invented by the top 5% of the smart people and everybody else is not that smart, but I don’t think that’s what it is. We’re all smart people, we function well, hopefully well adjusted, we have families, we have good social relationships. What happens to us when we make financial decisions? And I think the answer is simple. I actually don’t think human beings were ever designed to make financial decisions. I don’t think the human system was designed to think about the net present value of future cash streams or computing discounted cash flows to help us decide which mortgage is the better option or look at the APR and figure out what the net present value of a future stream of credit card debt is going to be – we were designed to do simple things and I think the challenge is that we have made the financial landscape so unhuman that even the best humans struggle in it.

It’s kinds of like if you pick a champion tennis player. I actually know a tennis player who has represented their country at the Davis Cup and so this person is a really good tennis player and he came and visited me in Canada and we were up at the cottage in February and the tennis court looked like this, it was ice, and it turns out he was as good or as bad as I was when we play on ice. Ice is a great leveler when it comes to, you know, when it comes to tennis skills. I think the financial marketplace is similarly a great leveler when it comes to humans in terms of their distribution for intelligence. Really intelligent people mess up when it comes to really simple financial decisions.

And I think we need to think a little bit about - obviously financial literacy is great and we need to get people up to speed- but we need to think long and hard about the landscape, the tennis court. Just as people need financial literacy, maybe the financial services industry needs a little bit of human literacy as well. So what can we do to make information more human compliant? I mean organizations spend so much time and energy and effort in compliance with the law. Where is the compliance with human behavior? Right? In an effort to satisfy lawyers, we’ve designed complicated brochures, we make sure we put everything in the appendix. Doug, your disclaimer was incredible but it just goes to show the kinds of things we do that make life difficult for humans, and so I think we need to think long and hard about how to fix that problem in addition to simply educating people on how to make better decisions.

So let me just toss out four quick things and then I will shut up and let all of us go to where we need to go next. Point No. 1 I want to make is about the utility and futility of debate. Point No. 2 is I’m going to make the claim that nudge theory that a lot of people talk about isn’t a thing, it’s a collection of many things. There’s a lot more nuanced psychology that goes into understanding nudge theory. I’ve heard it being called nudge economics or nudge theory or whatever else. The third thing that I want to emphasize is that the value of the behavioral approach isn’t in the results. So for example, it’s tempting to hear about the great research that was done over the last day and a half and then to go back and say, well it worked for them, it’s probably going to work for me. It’s not that easy and so I’ll just make a quick comment on that and finally I’ll end up with ethical concentrations.

So let’s start with the utility and futility of debates. You heard – I thought that was a fun debate but the value in the debate isn’t in who won and who was right and who was wrong. It is in where the convergence is. What can we learn from both sides of the debate that will allow us to better harness, in this case: innovation. And so I remember back, it’s now seven years ago, there was an FCAC OECD conference on financial literacy, 2011, in Toronto. I was on a panel and it wasn’t designed to be a debate but it became a debate and the debate was: Are we better off educating people or are we better off nudging people? And of course, the answer was neither. It’s to figure out how we harness both sides, but unfortunately even today, people are still debating the education versus nudging stuff. There are still people – like you go on twitter, right, this is where – “education works”, right, “it’s empowering, nudging is demeaning”, right.

And the folks who love behavioral economics will say “nudging is everything, education doesn’t matter”. It’s not about brownie points. It’s about how do we best take both those perspectives and design interventions? A couple of years back, you heard from Avni at the Moncton conference about financial literacy in a box. The idea there is to say education is great. Can we use choice architecture to somehow enhance the value of education? And so I think that’s the way we need to start thinking about debates like these. It’s not about who’s right, who’s wrong, it’s about how can we take multiple perspectives and make them work for us.

The second point: nudge theory isn’t a thing. In psychology we talk about kind of the four “-itions”, if you will, of human behavior. There are some – I am actually going to show you a slide. Motivation, cognition, perception, emotion. These are four things we need to think about as we design education interventions, as we design choice architecture interventions. We tend to focus too much on the cognition. We tend to give people too much information. If there’s a problem we say well, people must not be informed about it and so we give them even more information and then they get 20 pages of information and they choose not to consume the information at all. We need to think about these other things. Maybe they don’t see the problem the same way that you do. Maybe it’s a perception problem, maybe it’s an emotional problem. Maybe it’s motivation, maybe they don’t care about solving their problem. So you can give them as much information as you want, but it’s not going to change their behavior. So that’s an important point to keep in mind, right.

The third point I want to make is about the value of the behavioral approach, it’s not so much in the results. One of the biggest things we learned from behavioral economics is the notion of context dependence. Change the outcome and the results change, right and so it’s tempting to borrow, steal, leverage an idea that’s worked for someone else, somewhere else at some other point in time and say I’m going to do it. The U.K. nudge unit, did a social comparison thing, they were able to get people to pay taxes on time, I can do the same thing, right, but you’re in a different context, you’re working with different people. You’re working with – in a different time period.

And so I think we need to keep in mind that it is important to test everything, test every intervention and so the nature of research that we do also needs to change and the nature of how we consume research needs to change. It’s not that just because it worked for somebody else, it’s going to work for me, but we’ve got to keep testing it in the context that we’re doing it, right.

And then finally, so I am just going to skip a couple, I want to just briefly talk about ethics. Lots of questions came up both here and in information conservations about is it ethical to nudge people, to steer people, to get people to make decisions that they may not have otherwise made and I do – the best thing I do when I have a complex question is I simply refer people to what other people have done. So in this case, I’m going to refer you to a lovely book by Cass Sunstein, it’s called the Ethics of Influence. He talks about a code of conduct, a charter, those of us in academia obviously get ethics approval before we do research and I would encourage all of you to do that as well, but the alternate way of thinking about this question is oftentimes, what are the ethics of not doing anything? And so Steve, earlier you were talking about payday lending and the fact that there’s predatory lending and we’re working with the government to discuss interventions to help people make better choices there and somebody said, well, what are the ethics, right. What are the ethics of doing nothing when people are paying 47% interest, right? And so I think that’s the other way we need to think about ethics.

So on that note, I will shut up because I could keep going on and on, but my thank you as well to FCAC for doing this with us. It’s been a tremendous pleasure, honour, having you and indeed, everyone here. Keep the conversations going, we will – as promised, put up a website with videos, with transcripts, with power points, with posters, everything on there. Give us a couple of weeks to do it, but it shall happen. So thank you very much and back to you.