Financial advice is useless if the client doesn’t understand it.

Sadly, it’s an all too common occurrence. However, a new wave of digital innovation could change that by presenting financial information in ways that not only deepen comprehension, but change behaviour.

Gamification – the process of integrating game-like actions into everyday tasks – is one process that is quickly making financial advice more accessible and entertaining. And it can help us to develop capabilities that impact our real-life financial wellbeing.

More than entertainment: games reveal behaviour

Shachar Kariv, the Benjamin N. Ward Professor of Economics and Department Chair at UC Berkeley, says gamification can help the financial planning industry discover clients’ true risk and return preferences.

“What we want to do is give the client a game, and in the game the client will need to make decisions, not answer any questions. The decisions will be about risk and return and in the way the client will trade off this risk and return we will discover his preferences from his choices,” Kariv said at an event hosted by independent actuary and consulting firm Milliman.

This approach is underpinned by mathematical theory but wrapped in a game that people enjoy playing.

“Think about it as the space invaders of decision making.”

A simplified example is a heads-tails coin flipping game, which asks clients to choose a sliding point on a graph, producing different dollar amounts on the X and Y axis. This reveals each person’s risk-return trade-offs and preferences in a statistical manner.

This scientific process is known as ‘revealed preferences’ and uncovers the motivations we don’t realise are influencing our decision making. It stands in stark contrast to current industry practice where clients tell planners via a questionnaire how they feel about different financial scenarios (or ‘stated preferences’).

“We don't think that person is lying to us in any way – he just cannot articulate these preferences.”

Technology presents problems as well as solutions

A fundamental insight of the relatively new field of behavioural economics is that people are prone to act in predictably irrationally ways that are not always in their best interest.
The rapid pace of technological change has introduced a new layer of risk with increasing digital fraud, mis-selling and easier access to debt through products such as online payday loans, mobile credit, virtual peer-to-peer lending and mobile insurance.

Fewer than half of adults met the minimum target score (answering 70% of financial knowledge questions correctly), according to the recent G20/OECD International Network on Financial Education (INFE) report on adult financial literacy.

But that same technology can also help lift financial literacy through gamification and other digital tools, according to a separate OECD INFE report.

“Technology can help shape consumers’ habits and attitudes to finance, as well as increase their personal confidence by allowing individuals to test financial concepts and products in real time, learn by trial and error, and experience failure (e.g. through interactive online/mobile games) – thus strengthening the overall financial decision-making process,” the report said.

Mindblown Labs’ Thrive ‘n’ Shine is one of a new breed turning financial education into easy-to-absorb games for younger people. Other websites are targeting both children and adults with free online and mobile games which aim to improve personal financial capability, knowledge and self-confidence.

While Australians have relatively solid levels of financial literacy compared to many G20 countries, lifting standards and changing behaviour through low-cost digital innovations remains crucial.

A recent online survey commissioned by BPAY of 1000 bill payers identified 19 per cent as relatively young Australians struggling with stretched budgets. A high 89 per cent said they were experiencing financial stress while 89 per cent said they managed bill payments to help with cash flow, often paying at the very last minute or after the due date.

Interactivity deepens consumer understanding

Peter Ford, founder of bionics and robotics company Control Bionics, says virtual reality, augmented reality and mixed reality could represent the next step towards a deeper financial understanding beyond financial data presented in spreadsheets.

Immersive technology already being used in the travel and tourism industry could find its way into financial services and make goals, such as owning a new house, more tangible.

 “We’re starting to get used to the idea that maybe AI could be harnessed… maybe the images could be made for people that are so non-imposing that they’re not scary, but so rich in information that they are really useful and they can make valuable decisions about their future, whether it’s their mortgage or retirement planning,” he recently told an audience of financial planners at the Adviser Innovation Summit 2017.

“Can we make it our ally rather than our enemy? Can we make it so that we become smarter?” Ford asked.

Established research on how people learn suggests that we can.
The more hands-on an activity is, the more people generally remember, according to Edgar Dale’s cone of experience model. And action-based learning is the most effective of all, with average retention rates of up to 90 per cent. That’s compared to retention of just 20 per cent of what people hear.

Interactive technology has the potential to bring new life to the advice industry. Building financial literacy has never been so much fun.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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