Sustained behaviour change through financial education: A budgeting longitudinal study using mobile technology
Executive summary
The Financial Consumer Agency of Canada (FCAC) is the lead agency of the federal government when it comes to promoting and increasing financial literacy among Canadians. The Agency has a dual mandate to protect consumers of financial products and services through enforcing compliance with laws, regulations and codes of conduct of federally regulated financial entities, and to promote consumers’ understanding of financial issues.
In 2016, FCAC conducted a budgeting pilot study in British Columbia and Newfoundland & Labrador. During the pilot, individuals received targeted financial education messaging in the form of short interventions that aimed to empower non-budgeters to make and follow a budget. The pilot study was successful in increasing the use of budgeting behaviours among non-budgeters.
In 2018, approximately one and a half years after the pilot study was conducted, FCAC invited pilot study participants to complete a follow-up study. The goal of this follow-up study was to assess the long-term effects of the pilot study in influencing budgeting behaviours, to evaluate the impact of budgeting on financial well-being outcomes, and to identify barriers to budgeting.
Key findings
- FCAC’s financial education messaging was successful in enabling people to adopt the use of a budget. Over half (54%) of those who began budgeting during the pilot were still budgeting one and a half years later. Further, almost one-third (32%) of those who intended to budget after completing the pilot study followed through with their budgeting intentions.
- Budgets provide an opportunity to help non-budgeters achieve their money management goals. When non-budgeters were asked what they would like to improve about their money management behaviour, they indicated they would like to set financial goals and build savings (31%). These goals align with the top benefits budgeters cite their budget helps them to achieve.
- Budgeters can be classified into one of two categories – “habitual” budgeters or “cyclical” budgeters. Habitual budgeters are more likely to persist in their budgeting behaviours while cyclical budgeters are more likely to discontinue their budgeting habits.
- Budgeters and non-budgeters differ in their financial goals, budgeting confidence, and money management habits. For example, initial non-budgeters from the pilot study who have a budget at the follow-up are more likely than initial non-budgeters who do not budget to report keeping up with financial commitments well or very well (70% vs 45%, respectively). Those who have a budget at the follow-up are also less likely than those who do not to have spending regret (56% vs 46%, respectively).
- The two most common barriers to budgeting in the follow-up study are feeling “overwhelmed” managing money (35%) and not needing a budget to manage money (32%). These non-budgeters differ from one another in their financial situations, attitudes, and outcomes.
About Financial Consumer Agency of Canada (FCAC)
FCAC is an agency of the federal government mandated to strengthen the financial literacy of Canadians. The Agency has a dual mandate to: (1) protect consumers of financial products and services through enforcing compliance with laws, regulations, and codes of conduct of federally regulated financial entities; and (2) promote consumers’ understanding of financial issues. In 2013, FCAC’s mandate was expanded to include collaboration and coordination of its activities to support initiatives to strengthen the financial literacy of Canadians. Ensuring that consumers receive appropriate information to make informed financial decisions and actively participate in the financial sector is an important part of this mandate.
About Carrot Rewards
Carrot Rewards is a national public engagement and rewards platform. Carrot leverages the use of smartphones and loyalty points to drive small, meaningful changes in behaviour. Users are provided with opportunities to earn rewards for engaging in small health and wellness behaviours. The app has rapidly gained popularity and has more than 1,000,000 users across three provinces.
Carrot Rewards employs a holistic approach to wellness that includes elements such as financial well-being, health-conscious behaviours and actions, consumer and product awareness, and environmentally friendly lifestyles. For example, through its partnerships, Carrot is using its user-base to educate consumers on topics such as budgeting, credit scores, and government savings vehicles, among others.
Introduction
Budgets are regarded as a powerful tool people can use to manage their day-to-day finances (OECD/INFE, 2016). People use budgets as a self-control mechanism to track and control their expenses (Thaler, 1999). Fernbach, Kan, and Lynch (2015) found that budgets help people prioritize their expenses and are particularly effective when someone is under financial stress.
Encouraging Canadians to make and follow a budget is an area of focus of the National Strategy for Financial Literacy – Count me In, Canada and of the National Research Plan for Financial Literacy, 2016-2018. In delivering on its mandate to strengthen financial literacy among Canadians and achieving the objectives set out in the National Research plan for Financial Literacy, 2016-2018, the Financial Consumer Agency of Canada (FCAC) carried out a budgeting pilot study using the Carrot Rewards mobile application in the summer of 2016.Footnote 1Footnote 2 This study enabled FCAC to explore opportunities to expand its efforts to promote consumer awareness and increase financial literacy using mobile technology. The pilot study was available to residents of British Columbia and Newfoundland & Labrador.Footnote
Looking back at the results of the pilot study
In the pilot study, a series of financial education interventions targeted non-budgeters to build their budgeting knowledge and confidence. The ultimate goal of the pilot study was to empower non-budgeters to make and follow a budget. After completing the pilot study, people who did not have a budget at the start of the pilot showed marked improvements in their budgeting knowledge and confidence. By the end of the pilot, 14% of non-budgeters began budgeting. Further, initial non-budgeters who completed all three of FCAC’s financial education interventions showed higher confidence to make and follow a budget (59%) and greater intention to create a budget (54%) than the non-budgeters of the control group (50% and 33%, respectively). Detailed findings and methodology of the pilot study can be found in Initiating budgeting behaviour among non-budgeters: A financial literacy pilot using mobile technology (McLean-McKay & Leigh-Mossley, 2017).
While the pilot study was overwhelmingly successful in improving budgeting knowledge, confidence, and behaviour in the short-term, FCAC was unable to measure the long-term impacts of its financial education messaging. FCAC completed a return to sample in order to evaluate these long-term impacts in the winter of 2018.Footnote 3
This report presents the results of FCAC’s follow-up interventions offered through the Carrot Rewards mobile application. The findings of the follow-up study are intended to evaluate the overall impact of budgeting financial education efforts, provide evidence of the relationship between budgeting and financial well-being outcomes, and identify groups in need of targeted financial education interventions.
The remainder of this report provides an overview of the FCAC follow-up study; assesses the persistence of budgeting behaviours and confidence over the course of pilot and follow-up studies; examines the impact of budgeting on financial wellness; explores barriers to budgeting; and provides key takeaways for financial literacy practitioners.
Methodology
In the winter of 2018, FCAC and Carrot Rewards conducted a return to sample of the British Columbia and Newfoundland & Labrador pilot study. People who had a budget in the pilot study as well as those who planned to budget were invited to complete the follow-up study.
The follow-up study consisted of three interventions. The first intervention was offered to all follow-up participants. Participants were then grouped by budgeting behaviour. One additional intervention was sent to budgeters and a separate additional intervention was sent to non-budgeters. Figure 1 depicts the structure of the follow-up study.
Figure 1: Program structure of the follow-up study
Figure 1: Text version
Description of program structure | Number of respondents in each component |
---|---|
Time one: Follow-up general intervention | 5,323 |
Budgeters | 3,629 |
Non-budgeters | 1,694 |
Time two: Follow-up budgeters’ intervention | 3,016 |
Time two: Follow-up non-budgeters’ intervention | 1,375 |
Demographic profile
In the follow-up study, the majority of participants were female (67%; n=3,553), between the ages of 25 and 44 (59%; n=3,104), and resided in British Columbia (81%; n=4,318). Table 1 describes the descriptive characteristics of budgeters and non-budgeters at the follow-up study.
Budgeters n=3,629 | Non-Budgeters n=1,694 | |||
---|---|---|---|---|
Age | 13 – 17 | 1% | 13 – 17 | 2% |
18 – 24 | 14% | 18 – 24 | 19% | |
25 – 34 | 35% | 25 – 34 | 36% | |
35 – 44 | 23% | 35 – 44 | 23% | |
45 – 54 | 15% | 45 – 54 | 12% | |
55 – 64 | 9% | 55 – 64 | 6% | |
65 and over | 3% | 65 and over | 2% | |
Gender | Male | 33% | Male | 28% |
Female | 65% | Female | 70% | |
Other | 1% | Other | 0% | |
Prefer not to say | 1% | Prefer not to say | 2% | |
Province | British Columbia | 82% | British Columbia | 80% |
Newfoundland & Labrador | 18% | Newfoundland & Labrador | 20% | |
Personal Income | Less than $13,001 | 14% | Less than $13,001 | 18% |
$13,001 – $24,999 | 12% | $13,001 – $24,999 | 14% | |
$25,000 – $39,999 | 15% | $25,000 – $39,999 | 16% | |
$40,000 – $62,999 | 24% | $40,000 – $62,999 | 22% | |
$63,000 and over | 21% | $63,000 and over | 17% | |
Prefer not to say | 1% | Prefer not to say | 1% | |
I don’t know | 13% | I don’t know | 12% |
Persistence of budgeting and confidence
Over two-thirds (68%) of follow-up participants had a budget. This includes people who had a budget prior to the start of the pilot study as well as those who started budgeting as a result of receiving FCAC’s financial education messages. The majority of these budgeters (75%) reported staying within their budget very often or always. Further, almost three-quarters (73%) of follow-up participants were confident in their ability to make and follow a budget.Footnote 4
The pilot study aimed to create both short and long-term changes in budgeting behaviours and confidence among non-budgeters. The follow-up study reveals FCAC’s financial education messages delivered in the pilot study were successful in creating sustained changes in behaviour among non-budgeters.
Budgeting behaviours
At the follow-up study, budgeting behaviours and confidence were measured among key focus groups identified in the pilot study.
These focus groups include those who began the pilot with a budget and those who began the pilot without a budget but had adopted the use or had planned to adopt the use of a budget by the end of the pilot:
- The first key group includes individuals who began the pilot with a budget. At the follow-up study, 75% of these individuals persisted in their budgeting behaviours.
- The second key group is comprised of individuals who began budgeting by the end of the pilot study. More than a year after completing the pilot study, 54% of these individuals persisted with their budgeting behaviours.
- The last key group consists of individuals who planned to budget by the end of the pilot study.Footnote 5 At the follow-up study, 32% these individuals followed through with their intentions to create a budget.
The cyclical nature of budgeting
The follow-up study provides evidence that the budgeting behaviours of individuals who began the pilot with a budget differ from those who did not have a budget at the beginning of the pilot.
At the follow-up study, individuals who began the pilot with a budget are more likely to display persistent budgeting behaviours over time. For instance, 60% of these initial budgeters had a budget for more than 6 months at the time of the follow-up study and only 15% have had a budget for less than 6 months.
A higher incidence of discontinuing budgeting behaviour occurs among those who adopted the use of a budget by the end of the pilot study. While 54% of these new budgeters have continued budgeting at the follow-up study, 26% have had a budget for less than 6 months. This indicates that these individuals discontinued and then restarted their budgeting behaviours in the time between the pilot and follow-up studies.
Pilot “discontinuers” and “persistent” budgeters
In the pilot study, “discontinuers” are defined as non-budgeters who began budgeting in intervention 2 but discontinued their budgeting behaviours by the time of intervention 3. In comparison, “persistent” budgeters are non-budgeters who adopted the use of a budget by intervention 2 and were persisting with their budgeting behaviours at the time of intervention 3.
“Discontinuers” paused their budgeting behaviours during the pilot study, however, they did not permanently give up on budgeting. By the time of the follow-up study, many discontinuers had started to budget again. In fact, the same proportion (55%) of pilot “discontinuers” and “persistent” budgeters had a budget at the follow-up study. This indicates that some “persistent” budgeters discontinued their budgeting behaviours while some “discontinuers” returned to their budgeting behaviours.
Among the 55% of “persistent” budgeters who continued budgeting from the pilot to the follow-up study, 47% have had a budget for less than 6 months. This provides further evidence that while some “persistent” budgeters are continuing to budget, almost half have discontinued between the pilot and the follow-up studies.
Conversely, some pilot “discontinuers” display persistent budgeting behavior. For instance, among the 55% of “discontinuers” who returned to their budgeting habits by the start of the follow-up study, 36% have had a budget for more than 6 months (Figure 2).
Figure 2: Follow-up budgeting behaviours of pilot study “discontinuers” and “persistent” budgeters
*The sample population of the follow-up study includes 85 “persistent” budgeters and 40 “Discontinuers” from the pilot study.
Figure 2: Text version
Budget behaviour | Proportion of pilot study “discontinuers” | Proportion of pilot study “persistent” budgeters |
---|---|---|
Yes, I have a budget | 55% | 55% |
No, but I intend to make one | 35% | 39% |
No, and I do not intend to | 10% | 6% |
Budgeting confidence
Confidence in managing one’s finances is an important component of financial literacy and is an indicator of good day-to-day money and debt management (Palameta et al., 2016). Overall, budgeting confidence has increased and persisted among pilot participants who completed FCAC’s budgeting financial education interventions. Among participants who began budgeting during the pilot study, the proportion that were confident in their ability to make and follow a budget was higher at the end of the study (52%) than at the beginning of the study (41%).
Looking back at the results of the pilot study
The pilot study aimed to improve the budgeting confidence of non-budgeters to enable these individuals to budget. Budgeting confidence was measured at the beginning and end of the pilot study. By the end of the pilot study, budgeting confidence had improved among non-budgeters by 15 percentage points (McLean-McKay & Leigh-Mossley, 2017).
The follow-up study provides evidence that confidence to make and follow a budget is subject to a decay effect in the absence of ongoing financial education. Pilot initial non-budgeters who began budgeting by the end of the pilot study had higher confidence to make and follow a budget at the follow-up study than at the beginning of the pilot study (63% vs 44%, respectively).Footnote 6 However, among these same individuals, confidence to make and follow a budget was lower at the follow-up study than at the end of the pilot (63% vs 74%, respectively). A decay in budgeting confidence from the end of the pilot study to the follow-up study is also present among those who completed the pilot with an intention to budget (47% vs 43%, respectively).
This decay effect is also present among individuals who had a budget at the beginning of the pilot study. Figure 3 summarizes the persistence of budgeting confidence over the course of the pilot and follow-up interventions among follow-up study participants.
Figure 3: Budgeting confidence of key groups over the course of the pilot and follow-up studies
Figure 3: Text version
Time of assessment | Proportion of respondents who began budgeting during the pilot study |
Proportion of respondents who intended to budget after the pilot study |
---|---|---|
Beginning of the pilot study | 44% | 40% |
End of the pilot study | 74% | 47% |
Follow-up study | 63% | 43% |
Key findings
The persistence in budgeting behaviours and confidence of pilot and follow-up study participants reveals three key findings. These key findings are the identification of “habitual” budgeters and “cyclical” budgeters, the role self-reflection plays in making decisions and the decay in confidence to budget in the absence of financial education over time.
“Habitual” and “cyclical” budgeters
The follow-up study provides evidence of two types of budgeters – “habitual” budgeters and “cyclical” budgeters. “Habitual” budgeters are budgeters who persist in their budgeting habits while “cyclical” budgeters use discontinuing budgeting behaviours. At the follow-up study, “habitual” budgeters are more likely to be individuals who began budgeting before the pilot study and “cyclical” budgeters are more likely to be those who started the pilot without a budget but began budgeting by the follow-up study.
“Habitual” budgeters may be more inclined to budget because they enjoy organizing their finances or because they have incorporated budgeting as part of their day-to-day money management habits (Kempson & Poppe, 2018). In comparison, “cyclical” budgeters may be more likely to turn to a budget to achieve a financial goal, however, when this goal is achieved, these individuals may relax their budgeting habits (Kempson & Poppe, 2018).
The cyclical pattern of budgeting may reflect a “learning curve” in which new-budgeters are learning to adapt their money management habits. Palameta et al. (2016) found that a learning-by-doing approach is key to successful day-to-day money management as it allows individuals to learn from their own experience. Improving budgeting confidence is crucial in this domain. Indeed, individuals with lower confidence may opt out of budgeting habits when they find it difficult to manage their day-to-day finances or constrain their spending habits, but individuals with greater confidence may make greater efforts to overcome these obstacles (Bandura, 1982). For instance, in the pilot study, individuals who displayed discontinuing budgeting behaviours were less confident than those who were persistent in their budgeting habits (McLean-McKay & Leigh-Mossley, 2017).
Self-reflection
Among initial non-budgeters who had intended to budget by the end of the pilot, 32% followed through with their budgeting intentions at the follow-up study. Before making decisions, individuals may engage in self-reflection to interpret information (Palameta et al., 2016). In the case of the budgeting pilot study, non-budgeters who had intended to budget may have taken time to process FCAC’s budgeting financial education messaging that they received before deciding how and when to adopt budgeting behaviours.
Decay in budgeting confidence
When assessing the persistence of confidence levels among the subgroups identified in the pilot study, confidence levels remain higher at the follow-up study than at the beginning of the pilot study, however, evidence of a decay effect is present. Fernandes, Lynch Jr., and Netemeyer (2014) find that the effects of financial education decays over time. Their research suggests that financial education should be delivered using a “just in time” approach targeted to specific financial behaviours. A decay effect in budgeting confidence between the pilot and the follow-up studies indicates that budgeters may benefit from recurring budgeting messages to maintain their confidence in making and following a budget while they gain a greater amount of experiential learning.
The impact of budgeting on financial well-being
The follow-up study reveals that FCAC’s financial education messaging was successful in enabling sustained behaviour change and improvements in budgeting confidence among non-budgeters.
An objective of FCAC’s follow-up study was to evaluate the impact that budgeting behaviours have on money management attitudes and outcomes. Together, these influence an individual’s financial well-being. This study provides evidence that budgeting leads to positive financial well-being behaviours and outcomes. For instance, at the follow-up study, nearly all individuals (99%) who have a budget identified a way in which their budget has helped them manage their money (Figure 4). Further, 31% of budgeters report a budget helps them to be aware of where their money is going and 21% report having a budget helps them to set financial goals and build savings. Diving deeper, over half of budgeters have used their budget to help pay down their existing debts (55%), to increase their savings for the future (57%), or to save for emergencies (57%).Footnote 7
Figure 4: Benefits of budgeting identified by follow-up study budgeters
Figure 4: Text version
Benefits of budgeting | Proportion of follow-up study budgeters |
---|---|
Be aware of where my money is going | 31% |
Prioritize my spending | 13% |
Pay my bills on time | 14% |
Set financial goals and build savings | 21% |
Reduce my financial stress | 8% |
Feel in control of my money | 13% |
A budget doesn’t help me manage my money | 1% |
At the follow-up study, budgeters are more likely than non-budgeters to be saving for longer-term financial goals such as retirement (18% vs 10%) and be paying down a mortgage (15% vs 12%).Footnote 8 Further differences between budgeters and non-budgeters can be found in their ability to keep up with financial commitments, their money management behaviours, and their confidence to make and follow a budget.
Keeping up with financial commitments
The follow-up study provides evidence that budgets are an effective money management tool which help individuals stay on top of their finances. People who had a budget one and a half years after receiving FCAC’s financial education messaging markedly outperformed those who did not adopt budgeting behaviours. For instance, 70% of initial non-budgeters who had a budget at the follow-up study were keeping up with their financial commitments well or very well as compared to just 45% of these initial non-budgeters who did not have a budget at the follow-up study. Further, of those who began the pilot with a budget and have continued to budget, 84% are keeping up with their financial commitments well or very well (Figure 5).
Figure 5: Differences in ability to keep up with financial commitments in the last 12 months between follow-up study budgeters and non-budgeters
Figure 5: Text version
Groups based on budgeting behaviour | Proportion of respondents keeping up with financial commitments well or very well |
---|---|
1) Began pilot with a budget & 2) Budgeting at follow-up | 84% |
1) Began pilot without a budget & 2) Budgeting at follow-up | 70% |
1) Began pilot without a budget & 2) Not budgeting at follow-up | 45% |
People who follow a budget are also more likely to reduce their spending (83% vs 68%) and are less likely to rely on credit (12% vs 17%) in the event they are struggling to make ends meet.
Spending regret
Budgets are a useful tool which help individuals implement self-control to avoid behaviours such as overspending and impulsive shopping (Fernbach, Kan, & Lynch, 2015). At the follow-up study, there is evidence that budgeters may be more likely than non-budgeters to consider their purchases before making them. For instance, 56% of budgeters report rarely or never buying something they later regretted as compared to 46% of non-budgeters.Footnote 9 This indicates budgeters have less spending regret than non-budgeters (Figure 6).
Figure 6: Differences in spending regret among follow-up study budgeters and non-budgeters
Figure 6: Text version
Spending regret | Proportion of follow-up study non-budgeters | Proportion of follow-up study budgeters |
---|---|---|
Always | 5% | 5% |
Very often | 8% | 5% |
Sometimes | 42% | 33% |
Rarely | 42% | 51% |
Never | 4% | 5% |
Method of tracking money
Budgeters use money management strategies that require a greater level of mental investment than do non-budgeters, such as the use of a budgeting tool or app (17% vs 7%), spreadsheet (29% vs 11%), or written budget (20% vs 10%). Conversely, non-budgeters appear more likely to use passive forms of tracking money that require less consistent or precise efforts, such as automating their bill payments and savings (25% vs 16%) and keeping track in their head (24% vs 12%). Non-budgeters are also 84 times more likely to report not tracking their money (16%) than are budgeters (0.19%).
While some non-budgeters report the use of money tracking methods which are associated with budgeting, for example the use of a budgeting tool or app, spreadsheet, or written budget, it is possible that non-budgeters use these methods exclusively to track their money. For instance, non-budgeters who reportedly “write their budgets out by hand” may prefer to record their income and expenditures through a written process but do not pre-assign their incomes into specific expenditure categories associated with budgeting. Further research may help clarify the difference in tracking techniques used among budgeters and non-budgeters. Figure 7 presents the money tracking techniques used among budgeters at the follow-up study.
Figure 7: Money tracking techniques used among budgeters at the follow-up study
Figure 7: Text version
Method of tracking money | Proportion of follow-up study budgeters |
---|---|
I use an online budgeting tool or app | 17% |
I use a spreadsheet | 29% |
I write out the budget by hand | 20% |
I automate my bill payments and savings | 16% |
I keep the budget in my head | 12% |
I use cash jars/envelopes | 2% |
Other | 3% |
I do not keep track of my money | 0.19% |
Budgeting confidence
Confidence to budget provides evidence of the importance of “learning by doing” when making and using a budget. This is evident when comparing the budgeting confidence levels of those who have been budgeting for a longer period to those who have been budgeting for a shorter period or who have not adopted the use of a budget. The majority (86%) of initial pilot budgeters who continued to budget at the follow-up study were confident in their ability to make and follow a budget. This is compared to 63% of those who began the pilot without a budget but had a budget at the follow-up study and 37% of those who did not have a budget at the beginning of the pilot or follow-up studies (Figure 8).
Figure 8: Differences of confidence to make and follow a budget between budgeters and non-budgeters at the follow-up study
Figure 8: Text version
Groups based on budgeting behaviour | Proportion of respondents who were confident or very confident to make and follow a budget |
---|---|
1) Began pilot with a budget & 2) Budgeting at follow-up | 86% |
1) Began pilot without a budget & 2) Budgeting at follow-up | 63% |
1) Began pilot without a budget & 2) Not budgeting at follow-up | 37% |
Key findings
FCAC’s financial education messaging enabled people to adopt budgeting behaviours. The follow-up study reveals that budgeting behaviours influence people’s money management attitudes and outcomes which in turn has an impact on their financial well-being.
People who budget have better financial outcomes
People who follow a budget are more likely to keep up with their financial commitments and reduce their spending when they are struggling to make ends meet than are non-budgeters. One possible explanation is that budgeters may have a greater awareness of their spending habits and have more knowledge of the areas they can cut back on. This corresponds with the findings of Fernbach, Kan, and Lynch (2015) who find that when faced with constraint, budgeters are more likely than non-budgeters to use priority planning.
Budgeting behaviours and confidence are linked
FCAC’s budgeting pilot and follow-up studies found a relation between confidence and budgeting behaviours. Financial confidence is often linked to improved financial literacy and is associated with day-to-day money and debt management (Palameta et al., 2016). Individuals may be more likely to budget if they have confidence in their ability to do so. Correspondingly, when individuals adopt the use of a budget, they grow their confidence when they achieve better outcomes such as keeping up with their financial commitments and limiting their spending. This results in a positive feedback loop whereby individuals grow their confidence through their behaviours, which in turn strengthens these behaviours. One way in which individuals strengthen their behaviours is by using more active approaches to track their money such as through the use of a written budget or spreadsheet.
Barriers to budgeting
The follow-up study presents an opportunity to better understand the reasons people choose not to budget in order to develop targeted approaches to providing financial education. Individuals may decide not to budget or may discontinue their budgeting behaviours because they face barriers to budgeting. At the follow-up study, the two most common barriers to budgeting cited among non-budgeters were “feeling overwhelmed managing money” (35%) and “not needing a budget to manage money” (32%).
Diving deeper, among initial pilot non-budgeters who did not have a budget at the follow-up, almost half (44%) report “feeling overwhelmed” as a barrier to budgeting. This suggests that non-budgeters may have a desire to budget, but may refrain from doing so because of the obstacle of overcoming barriers. Figure 9 presents barriers to budgeting identified by non-budgeters at the follow-up study.
Figure 9: Barriers to budgeting among non-budgeters at the follow-up study
Figure 9: Text version
Barriers to budgeting | Proportion of follow-up study non-budgeters |
---|---|
I don’t have time to make a budget | 15% |
I find it boring | 11% |
I feel overwhelmed managing my money | 35% |
I don’t need a budget to manage my money | 32% |
I prefer not to know about my finances | 2% |
I am not responsible for making financial decisions in my household | 5% |
Individuals who do not have a budget because they “feel overwhelmed” differ from those who do not budget because they “don’t need to budget” in their financial constraint, the method they use to track their money, their budgeting confidence, and the changes they wish to make to their money management behaviours. As such, the following analysis assess the differences between these two types of non-budgeters.
Financial constraint
The follow-up study provides evidence that “overwhelmed” non-budgeters may be more financially constrained than non-budgeters who “don’t need to budget”. In keeping up with their financial commitments, more than three-quarters (79%) of non-budgeters who “don’t need to budget” report they are keeping up well or very well as compared to approximately one-third (36%) of “overwhelmed” non-budgeters. However, evidence of financial constraint is present among some non-budgeters who “don’t need to budget” to manage their money (Figure 10).
Figure 10: A comparison of follow-up study non-budgeters who “don’t need to budget” or who feel “overwhelmed” managing their money in their ability to keep up with their financial commitments over the last 12 months
Figure 10: Text version
Keeping up with financial commitments | Proportion of “don’t need to budget” non-budgeters | Proportion of “overwhelmed” non-budgeters |
---|---|---|
Keeping up very well | 47% | 9% |
Keeping up well | 32% | 27% |
Neutral | 13% | 38% |
Not keeping up well | 8% | 24% |
Differences in ability to keep up with financial commitments provides evidence of an income effect. For example, non-budgeters who “don’t need to budget” are twice as likely to have a personal income of $63,000 or above (24% vs 10%) and are less likely to have an income of less than $25,000. Figure 11 summarizes the personal income levels of those who do not have a budget at the follow-up study who “don’t need to budget” or who feel “overwhelmed”.
Figure 11: Personal income levels of follow-up study non-budgeters who “don’t need to budget” or who feel “overwhelmed” managing their money
Figure 11: Text version
Personal income | Proportion of “don’t need to budget” non-budgeters | Proportion of “overwhelmed” non-budgeters |
---|---|---|
Less than $13,001 | 13% | 18% |
$13,001 to $24,999 | 9% | 18% |
$25,000 to $39,999 | 15% | 17% |
$40,000 to $62,999 | 21% | 24% |
$63,000 and over | 24% | 10% |
Time orientation is another indicator of financial constraint. Time orientation is a person’s tendency to focus on the past, present, or future when making decisions. Kempson and Poppe (2018) found that individuals who had longer time-orientations were more likely to save actively and use spending restraint.Footnote 10
At the follow-up study, time orientation was measured by asking individuals if they were more focused on the present day than saving money for the future (Figure 12). People who felt “overwhelmed” managing their money were twice as likely than people who “don’t need to budget” to place a higher focus on the present day (42% vs 20%). Conversely, people who “don’t need to budget” were twice as likely to indicate a focus on saving for the future (51% vs 26%). Given that “overwhelmed” non-budgeters are less likely to be keeping up with their financial commitments, it could be that these non-budgeters are focused on meeting their day-to-day financial obligations.
Figure 12: A comparison of how well the statement: “I am more focused on the present day than saving for the future” fits the financial decision making of follow-up study non-budgeters who “don’t need to budget” or who feel “overwhelmed” managing their money
Figure 12: Text version
More focused on the present day than saving for the future | Proportion of “don’t need to budget” non-budgeters | Proportion of “overwhelmed” non-budgeters |
---|---|---|
Very well | 5% | 10% |
Well | 15% | 32% |
Neutral | 28% | 32% |
Not well | 30% | 20% |
Not at all | 21% | 6% |
Money tracking methods
Experiential learning has been found to increase confidence when individuals learn their previous self-doubts were misguided. Learning by doing also allows individuals to gain new skills which combat obstacles when they arise (Bandura, 1982). An example of experiential learning relates to keeping track of one’s money. At the follow-up study non-budgeters who are “overwhelmed” managing their money are almost twice as likely to not keep track of their money than are those who “don’t need to budget” (18% vs 10%). These individuals may be “overwhelmed” managing their money because they do not have a clear idea of where their money is going. Figure 13 outlines the techniques these non-budgeters use to track their money.
Figure 13: Differences in money tracking techniques of follow-up study non-budgeters who “don’t need to budget” or who feel “overwhelmed” managing their moneyFootnote 11
Figure 13: Text version
Method of tracking money | Proportion of “don’t need to budget” non-budgeters | Proportion of “overwhelmed” non-budgeters |
---|---|---|
I use an online budgeting tool or app | 5% | 8% |
I use a spreadsheet | 11% | 8% |
I write out the budget by hand | 7% | 15% |
I automate my bill payments and savings | 27% | 24% |
I keep the budget in my head | 32% | 19% |
I use cash jars/envelopes | 1% | 1% |
Other | 7% | 6% |
I do not keep track of my money | 10% | 18% |
Budgeting confidence
As discussed, budgeting confidence is a predictor of budgeting behaviours. Individuals with lower budgeting confidence may refrain from budgeting because they focus on potential difficulties, which lead to self-doubt. According to Bandura (1982), this self-doubt distracts individuals from partaking in behaviours which will lead them to succeed and causes them to divert their attention to how they might fail. People who feel “overwhelmed” managing their money demonstrate lower confidence in their abilities to budget as compared to those who “don’t need to budget” (38% vs 68%). Further, almost one-third (28%) of non-budgeters who are “overwhelmed” and 5% of non-budgeters who “don’t need to budget” report low budgeting confidence (Figure 14).
Figure 14: Differences in budgeting confidence levels of follow-up study non-budgeters who “don’t need to budget” or who feel “overwhelmed” managing their money
Figure 14: Text version
Confidence to make and follow a budget | Proportion of “don’t need to budget” non-budgeters | Proportion of “overwhelmed” non-budgeters |
---|---|---|
Not at all confident | 1% | 4% |
Not very confident | 4% | 24% |
Neutral | 27% | 35% |
Confident | 43% | 30% |
Very confident | 25% | 8% |
Change to money management behaviours
At the follow-up study, non-budgeters were asked to identify one thing they would change about their money management if they could. The most important area for improvement among non-budgeters was setting financial goals and building savings (31%). Setting financial goals was followed by prioritizing spending (19%) and having a higher awareness of where their money is going (18%). Other areas non-budgeters wished to improve was to reduce their financial stress (15%), feel in control of their money (10%), and pay their bills on time (7%).
At the follow-up study, “overwhelmed” non-budgeters were four times more likely than non-budgeters who “don’t need to budget” to seek improvements that would help them pay their bills on time (12% vs 3%) and almost twice as likely to seek improvements that would help to reduce their financial stress (21% vs 12%). This further highlights the financial constraint faced by “overwhelmed” non-budgeters (Figure 15).
Figure 15: Money management improvements follow-up study non-budgeters who “don’t need to budget” or who feel “overwhelmed” managing their money wish to make
Figure 15: Text version
Money management goals | Proportion of “don’t need to budget” non-budgeters | Proportion of “overwhelmed” non-budgeters |
---|---|---|
Set financial goals and build savings | 36% | 27% |
Reduce my financial stress | 12% | 21% |
Pay my bills on time | 3% | 12% |
Feel in control of my money | 15% | 7% |
Prioritize my spending | 18% | 18% |
Be aware of where my money is going | 16% | 16% |
Key findings
The follow-up study identified the barriers and opportunities of budgeting behaviours among non-budgeters. In doing so, the follow-up study reveals the importance of developing targeted approaches to providing financial education.
Budgets are an opportunity to achieve money management goals
At the follow-up study, the top areas of day-to-day money management non-budgeters wished to improve upon was to set financial goals and build savings, prioritize their spending, and to have a higher awareness of where their money is going. These goals align with the top benefits budgeters report their budgets help them to accomplish. This suggests budgets are a useful mechanism non-budgeters can use to help achieve their day-to-day money management goals.
A need for targeted financial education interventions
Barriers to budgeting among non-budgeters reveal a need to target financial education interventions. Low budgeting confidence among “overwhelmed” non-budgeters suggest these non-budgeters could benefit from targeted messaging to help them to improve their confidence and money management strategies. Such may be accomplished by encouraging these individuals to use experiential learning techniques such as tracking their money. Further targeted messages can encourage individuals to track their money using more active approaches, and to budget their money to help them achieve their financial goals.
Non-budgeters who “don’t need to budget” at the follow-up study, particularly those who report not keeping up with their financial commitments well or very well, may also benefit from targeted financial education interventions. Targeted financial education messaging might aim to improve these individuals’ day-to-day money and debt management by encouraging these individuals to use active money tracking techniques. Targeted messaging might also aim to encourage these individuals to identify areas where they can reduce their spending.
“Overwhelmed” non-budgeters face financial constraint
The follow-up study reveals that “overwhelmed” non-budgeters have lower incomes, a higher tendency to focus on the present day rather than saving for the future, and lower confidence to make and follow a budget than do non-budgeters who “don’t need to budget”. Furthermore, only a little over one-third report they have kept up with their financial commitments well or very well within the last 12 months. It is particularly important to provide targeted financial education messaging to these “overwhelmed” non-budgeters in order to improve their day-to-day money management and financial outcomes.
Conclusion
FCAC’s financial education messages had a sustained impact in increasing budgeting behaviours and confidence among non-budgeters. The follow-up study provides important evidence of the relationship between budgeting behaviours and improved financial attitudes and outcomes. Financial attitudes and outcomes both help to enhance an individual’s overall financial situation.
The results of the pilot and follow-up studies suggest that financial education can initiate sustained positive budgeting behaviours which improve financial outcomes. These studies also demonstrate that mobile technology is a powerful tool for financial literacy practitioners to identify and reach target audiences. In the future, mobile platforms could be used to enhance other money management behaviours and improve the financial outcomes of Canadians.
Key takeaways for practitioners
In encouraging Canadians to adopt budgeting behaviours, financial literacy practitioners might consider the following key takeaways from the pilot and follow-up studies:
- The follow-up study shows that many non-budgeters fail to budget because they lack the confidence to do so. Practitioners might enable non-budgeters to budget by inviting these individuals to identify their personal barriers to budgeting and providing targeted messaging aimed to boost their confidence in these domains.
- Practitioners might also enable non-budgeters to budget by providing these individuals the opportunity to identify the areas of money management they wish to improve. Targeted financial education messaging might then educate non-budgeters on how they can use a budget to help achieve these goals. At the follow-up study, non-budgeters wished to set financial goals and build savings, prioritize spending and gain a higher awareness of where their money is going.
- It is important to remind non-budgeters and “cyclical” budgeters that budgets can be created and used to manage their money at any time. This may be accomplished by providing targeted messaging towards FCAC’s budget calculator and financial goal calculator. Targeted messaging should also look to increase budgeting confidence of these budgeters and non-budgeters by informing these individuals of the different uses of a budget—for example, better money management to accomplish goals in a shorter amount of time.
- In order to avoid the decay effect of financial education, practitioners might consider delivering targeted messaging aimed to increase budgeting confidence in a timely and recurring manner.
Acknowledgements
FCAC would like to acknowledge the excellent contributions of the Agency staff who worked on the development, implementation and analysis of this budgeting longitudinal study. In particular, we would like to recognize the following members of the Research and Policy team: Nicole Rivest, Steve Trites, Marcie McLean-McKay, Mathieu Saindon, Fabia Rahman and Bruno Lévesque.
FCAC would also like to acknowledge staff from Carrot Rewards, Lauren White and Megan Nobrega, for contributing to the conceptualization of the design and acquisition of the data.
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