Research & Training Symposium

The Psychology of Money

A commonly held belief is that education leads to knowledge, which then leads to action. However, a meta-analysis of nearly 200 financial education programs, completed by Professor John Lynch and his colleagues in 2014, found that “financial education interventions explain only 0.1% of the variance in financial behaviors.” Said another way, the evidence is that the effectiveness of financial literacy is close to zero. We know we want to design programs that lead to behavior change, so that we can help people get on track for a successful daily life and a dignified retirement, but how do we do it?

First, we know that coaching is perhaps the most effective intervention available. (Good job!) But remember, that knowledge is measured against an intervention that doesn't work at all. This means that coaching still has incredible upside to increase its effectiveness and incorporate behavioral insights into the core of its delivery. 

Our team at Common Cents Lab has run experiments with a dozen fintech companies. These experiments highlight the best strategies to coach people on making healthier financial decisions. During my general session at this year’s AFCPE Symposium, I will highlight these experiments, our learnings and how coaches can easily leverage behavioral insights within their daily interactions.

Example One

In a clever study, researchers Hadar, Sood, and Fox examined the role that confidence plays in our financial decision-making for retirement savings. The study’s researchers broke participants into two groups and provided each with different materials. One group was given basic descriptions of low- and high-risk investment funds, while the second group was given a more advanced description with complex terminology.

The participants were then asked how likely they would be to invest in each fund. Those given more technical and advanced descriptions were less likely to invest, regardless of whether the fund was low or high risk. Participants’ confidence in their understanding of the funds played more of a role in their investment decisions than the actual risk profile of the funds.

Example Two

The Common Cents team worked with employee financial wellness company Retiremap, to design an 8-week program that encourages short- and long-term savings. We designed one principle around the insight that habits are hard to break and hard to form. Therefore, whenever possible, the Retiremap platform emphasizes “one-time” behaviors—versus habits—that people can do to improve their financial lives.

How does Retiremap do this? Within the Retiremap platform we push people to take a one-time action and design their bank account structure to match their long-term goals. In a three-year randomized experiment, researchers found that parents who were provided with college savings accounts showed higher social and cognitive performance. The hypothesis is that parents given college savings accounts changed how they thought about their child’s future.

This intervention was not about educating parents about their child or about their finances or habits. Instead this intervention was designed to help parents create a “college-bound” savings account by a one-time default. In this way, researchers made it easy for parents to opt into a child savings account. By providing a separate account, the researchers helped create a shift in the parents’ mindset, thus creating a college-bound identity for their children.

At the 2017 AFCPE Symposium in November, I will deliver a general session on the Psychology of Money. The session will highlight the key behavioral biases that plague your clients, provide solutions for what to do about them and address the most common mistake that financial counselors make in a counseling session.  By applying behavioral insights we can remove the complexity from financial decision making and deliver positive, effective coaching one step at a time. 


Kristen Berman studies how people actually act in the marketplace, as opposed to how they should or would perform if they were completely rational. Currently she is a co-founder and head of product at Common Cents Lab, a Duke University initiative dedicated to improving the financial well-being for low to middle Americans. Kristen also co-founded Irrational Labs, a non-profit behavioral consulting company, with Dan Ariely in 2013. Irrational Labs helps companies and nonprofits understand and leverage behavioral economics to increase the health, wealth and happiness of their users. She was on the founding team for the behavioral economics group at Google, a group that touches over 26 teams across Google, and hosts ones of the top behavioral change conferences globally, StartupOnomics. She co-authored a series of workbooks called Hacking Human Nature for Good: A practical guide to changing behavior, with Dan Ariely. These workbooks are being used at companies like Google, Intuit, Netflix, Fidelity, Lending Club for business strategy and design work. She has given talks at the World Bank, Google, Facebook, Expedia, Aetna, Equifax and many other organizations and companies.

The Standard

4th Quarter 2017


Thank you to this issue's contributors:

Dedrick Asante-Muhammad

Forrest Baumhover, CFP®, EA

Kristen Berman

Donna Colfer, AFC®

Valerie Richards

Colin Ryan

Lorna Saboe-Wounded Head, Ph.D., AFC®, CFCS

Rebecca Wiggins

Brenda Vaughn, AFC®

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