Why do People Fail to Act on Financial Plans, the first published report by the Behaviourally Informed Organizations partnership, takes a behavioural approach to help financial planners address two common issues that prevent Canadians from proper financial planning.
The report identifies two gaps, an inaction gap that keeps some from planning at all and an implementation gap that prevents those who have written plans from implementing them.
The BI-Org partnership includes 18 partner organizations, including the Consumers Council of Canada. The report was produced by the Behavioural Economics in Action Research Centre at the Rotman School (BEAR) at the University of Toronto.
The report presents a number of immediate benefits. It’s attractively designed, not too long with a 30-page “powerpoint-style” presentation format, and well-organized.
The report’s diagnosis and discussion of consumer types and forces that keep them from implementing plans is somewhat intuitive. Financial planners who have been in the practice for any length of time have likely experienced many of those behaviours, and may have altered their own approaches. They may not call them “naive intenders” but they almost certainly have encountered customers who are persuaded to plan but “simply need help in making things happen.” Planners may already have found approaches to turn those intentions into action.
Less intuitive will be the report’s components on the different approaches the planners need to adopt to improve results. The report poses a number of rhetorical questions. On choice architecture: “How do I embed positive choice architecture in the ongoing communication? Specifically, how can I frame my messages to elicit action?” On packaging the plan: “Should the plan be a consolidated detailed plan versus a collection of short-term brief plans?” On timing: “When is the right time to remind the client?”
The report doesn’t provide answers to those questions, which leaves it for the planner to develop. It also directs firms to consider working with behavioural experts. “We also encourage interested organizations to ‘start small’ in their interventions, relentlessly test, learn and adapt their ideas and build out experimentation capabilities over time.”
That will certainly test an industry where growth often comes from more immediate measures such as new products to sell, and new services to provide.
The report that focuses on implementation gaps and behavioural approaches of consumers may be challenged by the implementation gap it leaves for planners.
Canadians still have trouble planning for their financial futures. Financial planners across the nation find getting people interested in drafting plans – and then getting clients to act on those plans – are the two most significant barriers.
The report notes that there are two major “gaps” that lead to Canadians failing to implement financial plans. The first are the potential clients that would like to get plans but fail to do so. The report identifies five causes of this gap, from procrastination to the benefits being too abstract. The bulk of the report looks at the second gap, an “implementation gap” in which clients have written plans, but fail to act upon them. This gap has seven causes, many of which are similar to the causes of inaction, but also include overchoice and information complexity.
Clients typically fall into a number of categories. The report helps financial planners understand the behavioural foundations of these consumers, and uses relevant behavioural science to propose some recommendations to address the implementation gap. One category, “naive intenders”, do not need additional education or evidence, for example. They simply need help making things happen.
The Behaviourally Informed Organizations (BI-Org) partnership also released Seeing Sludge, a separate report on context variables that impede rather than facilitate consumers.
Consumer desire to reduce waste and improvise recycling clashes with safety requirements on refilling smaller propane canisters.
Small propane canisters commonly used to fuel camping stoves and lanterns - known as one-pounders – are generally not refillable. Yet it is easy to find internet retailers who can provide adapters that claim to safely allow for the transfer of propane from larger barbecue containers to the empty camping containers. It’s easy to see the appeal for campers looking to reduce the waste generated by multiple empty metal containers at the end of a camping trip. The adapters can be purchased for $20 or less. There are numerous instructional videos, as well as web sites and message boards that extol how easy and smart it is.
But it’s not legal in Ontario, for a number of safety reasons. Ontario’s Technical Standards and Safety Authority issued numerous safety alert bulletins noting that the adaptors designed to complete transfers into smaller, non-refillable cylinders are illegal under the Propane Storage and Handling Code. This is because of the public safety risks posed by fires, explosions and burn hazards. As a result the adaptors cannot be sold in stores.
Propane cylinders must be filled by weight or volume at a TSSA-licensed facility, and Specification 39 canisters (the one-pound camping propane bottles) cannot be refilled at all. More details on the TSSA bulletin are available here.
Ontario campsites have large containers to collect the empty canisters, which are later vented, crushed and recycled.
The TSSA is responsible for promoting and enforcing public safety in Ontario. The Technical Standards and Safety Act regulations apply to three key sectors:
1. Boilers and pressure vessels and operating engineers
2. Elevating devices, amusement devices and ski lifts
A research partnership that includes Consumers Council of Canada and is being led at the Behavioural Economics in Action Research Centre at the Rotman School [BEAR] at the University of Toronto has been funded by Social Sciences and Humanities Research Council of Canada.
The partnership is composed of a team of 20 researchers and 18 partner organizations across Canada, the U.S., and internationally including private sector firms, government agencies and non-profits, including the Council. With support provided by SSHRC, the University of Toronto, other partner universities, government units, and organizations, the project commitment totals $4.8 million.
Prof. Soman holds the Corus Chair in Communication Strategy and is the Canada Research Chair in Behavioural Science and Economics at the Rotman School. He is director of the Rotman School’s Behavioural Economics in Action Research Centre [BEAR], which conducts leading edge academic research in the field of behavioural economics to help organizations better understand how real people act and in turn, design better products, services, and programs for them.
The grant was announced earlier this month by the Honourable Kirsty Duncan, Minister of Science and Sport, as part of more than $285 million in grants for over 6,900 researchers and graduate students across Canada through SSHRC, a federal research funding agency that promotes and supports postsecondary-based research and research training in the humanities and social sciences.