A nudge in a new direction: behavioural economics and financial literacy

Magnifiying glass with pie chart and smart phone with photos of people

May 14, 2018

By Jane Rooney, Canada’s Financial Literacy Leader

How do we change behaviour for the better? It’s a question that has preoccupied many researchers for a long time. One thing we know: it’s not easy. 

The field of behavioural economics recognizes that humans don’t always act in rational ways, but are influenced by so-called “behavioural biases.” This means that the way people act depends on the situation and the context. Today we are learning more about the field of behavioural economics and how it can provide useful insights about how people will behave in a given context. Those insights can inform the design of better financial literacy programs and interventions.

Three studies in our National Research Plan on Financial Literacy used behavioural insights to achieve successful outcomes.

Refund to Savings Initiative (R2S)

The first is called the Refund to Savings Initiative (R2S), which is the largest savings experiment ever conducted in the United States. This is a classic example of the use of behavioural insights which suggests a positive financial behaviour to consumers -- in this case, choosing to save part or all of their tax return. This study relied on the tax-filing software Turbotax, by Intuit, to promote saving among low- and middle-income people. All the participants in this study qualified for free online filing using Turbotax. This experiment uses various behavioural insights, including messages prompting people to save, “choice architecture” that makes the choice to save more prominent, and “anchoring,” in which the software suggests that a specific proportion of the tax return could be allocated to savings. The results so far have been very positive. In 2015 alone, R2S prompted 21,012 more low-to-moderate income tax filers to save, translating into $35.6 million (USD) in funds deposited into savings vehicles. We are so impressed by this result that FCAC is exploring similar opportunities to make it easier for Canadian households to save a portion of their tax return.

Financial Literacy in a Box

Another way to use behavioural insights to encourage positive behaviour is to simplify the decision-making process when it comes to financial choices. Two recent initiatives that do this were undertaken by the Behavioural Economics in Action (BEAR) Research Centre at the University of Toronto’s Rotman School of Management. The first, called “Financial Literacy in a Box,” seeks to simplify the financial decision-making process. It does this in part by highlighting and reminding people, at the time that they are making a financial choice, of what they have previously learned through the financial education intervention. The tool currently targets savings through the Registered Education Saving Program (RESP) and the Canada Pension Program (CPP). The tool’s just-in-time reminders are designed to help ensure that the knowledge gained through financial education actually gets used when it’s needed.

Financial Behaviour Online

A second BEAR paper encourages the use of “avatars” or constructs of people who are similar to the consumer, using icons that represent people at particular life stages (e.g. a student, a retiree, a parent etc.) for assisting decision making online. The work draws on the evidence found in behavioural economics that consumers have a tendency to seek out the opinions of others in similar situations and emulate their decisions. Thus, avatars simplify decision-making for the consumer by offering them options more closely associated with their own context.


There are several key takeaways from these studies that could help in the design of future interventions:

  • Program participants may benefit from a just-in-time, follow-up email or text (say at tax time, or during RRSP season) that reminds them of key takeaways from a given workshop
  • Online resources might benefit from visual aids and other devices that build on social norms and anchoring (for example, icons or avatars) to enable consumers to quickly identify strategies for making decisions and to choose the right option for them
  • There are also opportunities to use technology such as mobile apps and incentives such as rewards to make financial education more appealing to Canadians

I’d like to take this opportunity to congratulate our Research Sub-Committee 2016-18 for all its hard work!

Stay tuned!

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