CCPC shows financial institutions can improve consumer financial well-being

The Competition and Consumer Protection Commission (CCPC) research shows financial institutions can improve consumer financial well-being by using behavioural insights to encourage saving habits. CCPC has launched findings from its successful behavioural research trial on consumer saving habits. The research was carried out in response to an identified need to encourage short-term saving habits among Irish consumers to increase financial resilience against unexpected financial shocks.

CCPC shows financial institutions can improve consumer financial well-being

Designed and analysed by the Economic and Social Research Institute (ESRI)’s Behavioural Research Unit and facilitated by the Bank of Ireland in a research trial with real consumers, the findings clearly show a positive increase in savings behaviours when behavioural insights are incorporated into savings product design and marketing materials. The CCPC has used the findings to develop a guide for financial providers on how they can encourage short-term saving habits and improve the financial well-being of their customers.

‘First of its kind’ behavioural research in Ireland

This behavioural study represents the first trial of its kind in Ireland and one of the first in Europe. Developed as a large-scale randomised controlled trial (RCT) with real consumers, the study examined the effects of behavioural science interventions on whether consumers open a savings account and engage in precautionary saving. The results of the behavioural research demonstrated how altering savings application forms with ‘pledge tools’, interactive calculators and using infographics about financial shocks can support consumers in developing positive short-term savings habits, which is an important part of financial well-being.

Behavioural interventions boost savings account uptake by 25%

The research shows that by applying behavioural science to customer communications and the design of application forms, a financial provider can increase the uptake of savings accounts by over 25%. The ESRI’s research report also records the greatest benefit among customers on lower incomes, who are most vulnerable to the negative effects of unexpected expenses and financial shocks.

Future ‘financial shocks’ shown as key savings motivator for Financial Institutions

As part of the behavioural research trial, customers were sent marketing emails with consumer-friendly infographics that illustrated financial shock statistics, for example; “6 in 10 people face an unexpected expense each year”. Customers who received these emails were 20% more likely to open a savings account than those who received standard marketing materials. The study’s financial shock emails and digital ads saw a “click-through” rate increase of almost 10%.

Additional evidence-based findings showed:

The majority of customers decide to use optional interactive calculators to calculate their total savings target, the date they wanted to reach their goal and how much they wanted to save each month. Customers who opened a savings account were 10% more likely to have used the calculator than those who started a savings account application form, but didn’t complete it.

Reframing ‘rainy day fund’ messaging to ‘unexpected expenses’ in the behaviourally-informed savings account application form, positively influenced consumer behaviour when setting specific savings goals.

Flexible commitments through ‘pledge tools’ offered customers the chance to make pre-commitments to withdraw only for specific reasons (e.g. a car breakdown). International evidence shows flexible commitments to be more appealing to customers than fixed withdrawal restrictions. Trial participants who opened a savings account were over 2.5 times more likely to have used the optional pledge tool than those who started the application, but didn’t complete it.
Full findings from the ESRI behavioural research report can be found here.

Jeremy Godfrey, Chairperson of the CCPC said: “Every year, most people face at least one unexpected financial shock – such as the need to spend money on repairing their car or their boiler. Building up savings as a buffer against the unexpected is important for financial well-being but many people who could save for the unexpected don’t do so. This ground-breaking research conducted by the ESRI, Bank of Ireland and the CCPC has shown that many more customers will choose to save for the unexpected if financial institutions use behavioural insights to design their marketing materials and their application process. We encourage other financial institutions to make use of this research so that more Irish consumers can weather financial shocks without going into debt.”

Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union said: ‘We need to talk about money, and help consumers understand how to make money work for them. Savings can provide an important way for consumers to be prepared for unexpected financial shocks. The CCPC’s research shows what financial providers can do to prompt their customers to make good financial choices. It matters how information is presented and what language is used. This is a really valuable report that will feed into the work we are doing at an EU level to boost financial literacy, to help people understand how to better manage their personal finances.’

Professor Pete Lunn from the ESRI Behavioural Research Unit said: “This research demonstrates the use of behavioural science to support better financial decisions. Many people find managing their finances and dealing with financial products difficult. We used the methods of behavioural science to design and trial some systems to help them. We are very pleased with the results, which recorded meaningful increases in household savings.”

Gavin Kelly, CEO, Retail Ireland, Bank of Ireland said: “Improving financial wellbeing is a top priority at Bank of Ireland, so we were delighted to partner with the CCPC and the ESRI to facilitate this ground-breaking research trial with our customers. In practice, financial well-being means coping with the every day, the rainy day, and to plan for the future. However, we know that one in four people would not have enough in savings to meet their financial commitments for more than a month. And that’s a problem. Being prepared for the unexpected and able to cope with financial shocks is a key driver of financial wellbeing. Short-term saving for unexpected expenses is an important part of that. The change we have seen in customers contacted as part of this campaign is very encouraging, but we recognise that this is just the beginning. We are already using learnings from this campaign by introducing nudges and guidance to encourage positive change to saving habits and improve the financial wellbeing of our customers”.