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.

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

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

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.

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.

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%).

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

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

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 

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

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

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

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

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

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

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

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 money^{Footnote 11}

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

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

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.

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.

References

Bandura, A. (1982). Self-efficacy mechanism in human agency. American Psychologist, 37(2), 122-147.

Bandura, A. (1993). Perceived self-efficacy in cognitive development and functioning. Educational Psychologist, 28(2), 117-148.

Fernandes, D., Lynch J. G. Jr., & Netemeyer, R. G. (2014). Financial literacy, financial education, and downstream financial behaviors. Management Science, 60(8), 1861–1883.

Fernbach, P. M., Kan, C., & Lynch, J. G. (2015). Squeezed: Coping with constraint through efficiency and prioritization. Journal of Consumer Research, 41(5), 1204−1227.

Financial Consumer Agency of Canada. (2015). Managing money and planning for the future: Key findings from the 2014 Canadian Financial Capability Survey [PDF].

Financial Consumer Agency of Canada. (2017). National research plan for financial literacy: 2016-2018.

Kempson, E., & Poppe, C. (2018). Understanding financial well-being and capability – A revised model and comprehensive analysis. SIFO Consumption Research Norway.

McLean-McKay, M., & Leigh-Mossley, J. (2017). Initiating budgeting behaviour among non-budgeters: A financial literacy pilot using mobile technology.

Organization for Economic Cooperation and Development (2016). OECD/INFE International Survey of Adult Financial Literacy Competencies [PDF].

Palameta, B., Nguyen, C., Shek-wai Hui, T., & Gyarmati, D. (2016). The link between financial confidence and financial outcomes among working-aged Canadians [PDF].

Palameta, B., Nguyen, C., Shek-wai Hui, T., & Gyarmati, D. (2016). The role of financial literacy in financial decisions and retirement preparedness among seniors and near-seniors [PDF].

Thaler, R.H. (1999). Mental accounting matters. Journal of Behavioural Decision Making, 12, 183-206.