The Application of Behavioural Insights to Financial Literacy and Investor Education Programmes and Initiatives

Abstract

High-quality investor education and fi nancial literacy programs can help provide consumers and retail investors with a wide range of benefi ts, including more informed saving and investment decision-making, better fi nancial and retirement planning skills, higher levels of fi nancial inclusion, as well as greater confi dence and higher participation in the securities markets. Nonetheless, there is a range of cognitive, social and psychological factors or barriers that may prevent people from using their newly acquired knowledge to make satisfactory or rational fi nancial choices. Behavioural economics has identifi ed these barriers, known as biases in the scientifi c literature and which often arise from the use of heuristics (i.e. mental shortcuts) to simplify the decision-making process. Behavioural sciences focus on the way people think and behave, based on empirical evidence from a range of social sciences, such as economics, psychology, anthropology, pedagogy, sociology, and social marketing. Consequently, the insights generated may be used to help overcome biases and develop simple, sometimes low-cost, and effective investor education and fi nancial literacy initiatives. This publication reports the results of complementary surveys of members of both the International Organization of Securities Commissions (IOSCO) and the Organisation for Economic Co-operation and Development International Network on Financial Education (OECD/INFE). These surveys explored the extent to which behavioural insights are used to guide fi nancial literacy and investor education policies and practice. IOSCO’s Committee 8 on Retail Investors (C8) surveyed IOSCO members on the resources they commit and their experiences applying behavioural insights to investor education programmes and initiatives. The INFE Secretariat circulated a questionnaire on the application of behavioural insights to fi nancial literacy and fi nancial education policies and practice, to OECD/INFE members. The questionnaires are available in, respectively, Appendices E and F of this report. The majority of the respondents reported that they actively seek or learn from behavioural insights, mostly through existing literature, events, and partnerships/networks. Almost half of those that are not applying behavioural insights (twenty-six institutions) expressed interest in doing so in the future. This report also presents a literature review of relevant papers and reports on educational initiatives in the areas of investor education and fi nancial literacy, with the use of insights from behavioural sciences.