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The Application of Behavioural Insights to Financial Literacy And The Application of Behavioural Insights to Financial Literacy and Investor Education Programmes and Initiatives This work is published under the responsibility of the Board of IOSCO and the Secretary- General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of IOSCO members or OECD member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this paper as: IOSCO and OECD (2018), The Application of Behavioural Insights to Financial Literacy and Investor Education Programmes and Initiatives Copies of publications are available from the IOSCO website www.iosco.org and the OECD website www.oecd.org © International Organization of Securities Commissions – Organisation for Economic Co-operation and Development 2018. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. IOSCO – The International Organization of Securities Commissions (IOSCO), established in 1983, is the acknowledged international body that brings together the world’s securities regulators and is recognised as the global standard setter for the securities sector. IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation, and is dedicated to enhancing investor protection and promoting investor confidence. IOSCO’s membership regulates more than 95% of the world’s securities market and is one of the few international organizations that includes all the major emerging market jurisdictions within its membership. IOSCO believes the need for investor education and financial literacy has never been greater than it is today. In response to these challenges, the IOSCO Board established Committee 8 on Retail Investors in 2013. The Committee’s primary mandate is to conduct IOSCO’s policy work on retail investor education and financial literacy. Its secondary mandate is to advise the IOSCO Board on emerging retail investor protection matters and conduct investor protection policy work as directed by the IOSCO Board. See www.iosco.org The Organisation for Economic Co-operation and Development – OECD is a unique forum where governments work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice, and work to co-ordinate domestic and international policies. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. OECD governments officially recognised the importance of financial literacy in 2002 with the launch of a unique and comprehensive project. In 2008 the project was further enhanced through the creation of an International Network on Financial Education – INFE. The OECD/ INFE has high-level membership from over 240 public institutions – including central banks, financial regulators and supervisors, ministries of finance and ministries of education – in over 110 countries. Members meet twice a year to share country and member experiences, discuss strategic priorities, and develop policy responses. See www.oecd.org/finance/financial-education CONTENTS ACKNOWLEDGEMENTS 6 EXECUTIVE SUMMARY 7 1 - INTRODUCTION 11 1.1. SCOPE AND METHODOLOGY 12 2 - BACKGROUND AND CONTEXT 13 2.1. THE IMPORTANCE OF INVESTOR EDUCATION AND FINANCIAL LITERACY FOR GENERAL CONSUMERS AND RETAIL INVESTORS 13 2.2. BEHAVIOURAL ECONOMICS, HEURISTICS, AND BIASES 14 2.3. BEHAVIOURAL INSIGHTS DEFINITION 15 2.4. CONSUMER BEHAVIOUR, INVESTOR EDUCATION, AND FINANCIAL LITERACY 16 3 - LITERATURE REVIEW 18 3.1. DEBIASING 18 3.2. OTHER APPLICATIONS OF BEHAVIOURAL INSIGHTS TO INVESTOR EDUCATION AND FINANCIAL LITERACY 24 3.3. FINDINGS IN BEHAVIOURAL SCIENCES RESEARCH WITH POTENTIAL APPLICATIONS TO FINANCIAL LITERACY AND INVESTOR EDUCATION INITIATIVES 29 4 - BEHAVIOURAL FRAMEWORKS APPLICABLE TO THE DESIGN OF INVESTOR EDUCATION AND FINANCIAL LITERACY PROGRAMMES 32 4.1. COM-B 33 4.2. THE BEHAVIOUR CHANGE WHEEL (BCW) 34 4.3. MINDSPACE 37 4.4. EAST 39 4.5. TEST 39 4.6. DESIGN FOR BEHAVIOUR CHANGE (CREATE) 40 4.7. CONCEPTUAL FRAMEWORK FOR FINANCIAL BEHAVIOUR CHANGE WITH EDUCATIONAL STRATEGIES 42 5 - THE APPLICATION OF BEHAVIOURAL INSIGHTS TO INVESTOR EDUCATION AND FINANCIAL LITERACY INITIATIVES AMONG IOSCO AND OECD/INFE MEMBERS 44 5.1. RESOURCES DEDICATED TO TRAINING, RESEARCH, AND APPLICATION OF BEHAVIOURAL insights 44 5.2. APPLICATIONS OF BEHAVIOURAL INSIGHTS TO FINANCIAL LITERACY/INVESTOR EDUCATION PROGRAMMES 47 5.3. BEHAVIOURAL INSIGHTS APPLIED TO regulation 75 6 - APPROACHES 79 7 - CONCLUSION 82 APPENDIX A - IOSCO AND OECD/INFE MEMBERS PARTICIPATING IN THE SURVEYS 83 APPENDIX B - PUBLICATIONS FROM OECD, IOSCO, IOSCO MEMBERS, AND OECD/INFE MEMBERS ON BEHAVIOURAL SCIENCES AND INSIGHTS, RELATED TO INVESTOR EDUCATION AND FINANCIAL LITERACY 86 APPENDIX C - ONLINE RESOURCES AND EVENTS FROM IOSCO AND OECD/INFE MEMBERS 93 APPENDIX D - LITERATURE REVIEW REFERENCES 94 APPENDIX E - SURVEY OF IOSCO MEMBERS ON APPLICATION OF BEHAVIOURAL INSIGHTS TO INVESTOR PROGRAMMES AND INITIATIVES, DECEMBER 2016-JANUARY 2017 103 APPENDIX F - OECD/INFE SURVEY ON THE APPLICATION OF BEHAVIOURAL INSIGHTS (BI) TO FINANCIAL EDUCATION AND FINANCIAL LITERACY PROGRAMMES AND INITIATIVES, APRIL 2017 - SEPTEMBER 2017 114 APPENDIX G - IOSCO COMMITTEE 8 MEMBERS 121 ACKNOWLEDGEMENTS We extend gratitude to the below academics and professionals for their contributions to this report: • Dr Bernardo Nunes • Dr Cäzilia Loibl • Dr Jeremy Burke • Dr Jeremy Ko • Dr Vera Rita Ferreira • Members of IOSCO • Members of the OECD/INFE The Application of Behavioural Insights to Financial Literacy and Investor Education Programmes and Initiatives EXECUTIVE SUMMARY High-quality investor education and fi nancial literacy programs can help provide consumers and retail investors with a wide range of benefi ts, including more informed saving and investment decision-making, better fi nancial and retirement planning skills, higher levels of fi nancial inclusion, as well as greater confi dence and higher participation in the securities markets. Nonetheless, there is a range of cognitive, social and psychological factors or barriers that may prevent people from using their newly acquired knowledge to make satisfactory or rational fi nancial choices. Behavioural economics has identifi ed these barriers, known as biases in the scientifi c literature and which often arise from the use of heuristics (i.e. mental shortcuts) to simplify the decision-making process. Behavioural sciences focus on the way people think and behave, based on empirical evidence from a range of social sciences, such as economics, psychology, anthropology, pedagogy, sociology, and social marketing. Consequently, the insights generated may be used to help overcome biases and develop simple, sometimes low-cost, and effective investor education and fi nancial literacy initiatives. This publication reports the results of complementary surveys of members of both the International Organization of Securities Commissions (IOSCO) and the Organisation for Economic Co-operation and Development International Network on Financial Education (OECD/INFE). These surveys explored the extent to which behavioural insights are used to guide fi nancial literacy and investor education policies and practice. IOSCO’s Committee 8 on Retail Investors (C8) surveyed IOSCO members on the resources they commit and their experiences applying behavioural insights to investor education programmes and initiatives. The INFE Secretariat circulated a questionnaire on the application of behavioural insights to fi nancial literacy and fi nancial education policies and practice, to OECD/INFE members. The questionnaires are available in, respectively, Appendices E and F of this report. The majority of the respondents reported that they actively seek or learn from behavioural insights, mostly through existing literature, events, and partnerships/networks. Almost half of those that are not applying behavioural insights (twenty-six institutions) expressed interest in doing so in the future. This report also presents a literature review of relevant papers and reports on educational initiatives in the areas of investor education and fi nancial literacy, with the use of insights from behavioural sciences. 7 The Application of Behavioural Insights to Financial Literacy and Investor Education Programmes and Initiatives Approaches Based on the literature review and survey responses, C8 and the OECD/INFE developed a set of approaches considered to be effective for regulators, policy-makers, and other organisations and practitioners that are considering whether or how to apply insights from behavioural sciences to investor and financial education programmes and initiatives. These approaches are, in summary, to: • establish a concrete understanding of the problem; • design the intervention taking the context into account; • start small; • evaluate rigorously;
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