{"id":713,"date":"2019-06-24T13:22:27","date_gmt":"2019-06-24T13:22:27","guid":{"rendered":"http:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/?p=713"},"modified":"2020-02-06T10:14:20","modified_gmt":"2020-02-06T10:14:20","slug":"can-behavioural-insights-help-students-make-better-informed-financial-decisions","status":"publish","type":"post","link":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/2019\/06\/24\/can-behavioural-insights-help-students-make-better-informed-financial-decisions\/","title":{"rendered":"Can behavioural insights help students make better-informed financial decisions?"},"content":{"rendered":"

By\u00a0<\/span><\/i>Susannah Hume, Zoe Claymore and<\/span><\/i>\u00a0Vanessa Todman |<\/span><\/i>\u00a0<\/span><\/p>\n

\u00a0<\/span>T<\/span>he long<\/span>–<\/span>anticipated<\/span>\u00a0<\/span>Augar<\/span>\u00a0Review<\/span><\/a>\u00a0was finally released last\u00a0month<\/span>,\u00a0<\/span>and\u00a0<\/span>raises many questions about the future of Higher Education (HE) funding.\u00a0<\/span>The review recommends, inter alia, a cut to the fee cap from \u00a39250 to \u00a37500; a reintroduction of means-tested maintenance grants, to replace the current loans system; and an increase and lengthening of repayments once the graduate is in employment<\/span>.<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n

Money Saving Expert has written a\u00a0<\/span>comment<\/span><\/a>\u00a0exploring in detail the financial impacts of this for students, so we won\u2019t rehash it here, but\u00a0<\/span>Augar<\/span>\u2019s<\/span>\u00a0system manages to both look cheaper to prospective students and cost less to government. Depending on your perspective, this is either a neat bit of accounting or\u00a0<\/span>sludge<\/span><\/a> that mostly impacts lower<\/span>\u00a0<\/span>earning graduates.\u00a0<\/span>\u00a0<\/span><\/p>\n

However,\u00a0<\/span>with or without\u00a0<\/span>Augar<\/span>, an important question is<\/span> how to encourage students to make good decisions about HE, being mindful of what the financial costs and benefits are likely to be to them over the course of their lives. In this blog post we explore some of the ways that <\/span>behavioural insights<\/span>\u00a0can help students consider the financial implications of going to university and make the right decision for them.<\/span>\u00a0<\/span><\/p>\n

The nudges: how\u00a0<\/span><\/b>Augar\u2019s<\/span><\/b>\u00a0recommendations reduce psychological barriers to study<\/span><\/b>\u00a0<\/span><\/h3>\n

Reflecting on\u00a0<\/span>Augar<\/span>, our colleagues at the Behavioural Insights Team have\u00a0<\/span>blogged<\/span><\/a>\u00a0about the importance<\/span>\u00a0of<\/span>\u00a0how<\/span>\u00a0loans, fees and grants<\/span>\u00a0are framed,<\/span>\u00a0and note that cutting the headline fees\u00a0<\/span>may\u00a0<\/span>encourage\u00a0<\/span>more\u00a0<\/span>low-income learners to consider higher education<\/span>.<\/span>\u00a0Likewise, returning maintenance grants\u00a0<\/span>could\u00a0<\/span>make university seem cheaper and more feasible.<\/span>\u00a0<\/span>I<\/span>f we believe that going to university will benefit the individual financially over and above the higher repayments, then<\/span>\u00a0<\/span>reducing the most salient figure is potentially<\/span>\u00a0a<\/span>\u00a0positive change<\/span>.<\/span>\u00a0<\/span><\/p>\n

Another<\/span>\u00a0behaviourally informed change proposed by the review is changing the discourse from\u00a0<\/span>\u2018<\/span>debt<\/span>\u2019<\/span>\u00a0to a\u00a0<\/span>\u2018<\/span>student contribution system<\/span>\u2019<\/span>. This\u00a0<\/span>also\u00a0<\/span>could be a positive change,\u00a0<\/span>as some research suggests<\/span>\u00a0students from disadvantaged backgrounds are particularly averse\u00a0<\/span>to acquiring debt to fund education<\/span>.<\/span>\u00a0<\/span>The discourse around the current student loans system has long been criticised for talking about student\u00a0<\/span>\u2018<\/span>debt<\/span>\u2019<\/span>\u00a0when\u00a0<\/span>on a practical level it behaves quite differently to other forms of debt<\/span>.<\/span>\u00a0<\/span><\/p>\n

The sludge:\u00a0the funding changes hide the sting in the tail \u2013 repaying more for longer\u00a0<\/strong><\/h3>\n

P<\/span>eople struggle with processing financ<\/span>ial<\/span>\u00a0information generally, and<\/span>\u00a0tend to prefer simpler information over more complex, and certainty over uncertainty<\/span>, which helps explain the\u00a0<\/span>salience of<\/span>\u00a0the simple headline fee over the more complex repayment calculation.<\/span>\u00a0<\/span>This is\u00a0<\/span>mainly<\/span>\u00a0problematic for\u00a0<\/span>the subset of students who might be enticed into choo<\/span>sing a low<\/span>\u00a0<\/span>value degree when they should have considered other path<\/span>ways<\/span>\u00a0(something\u00a0<\/span>Augar<\/span> is quite elsewhere exercised about). <\/span>\u00a0<\/span><\/p>\n

Further, behavioural research consistently suggests that people struggle to empathise with their future selves.<\/span> Where this involves the disproportionate influence of costs and benefits in the immediate present over those in the future, it is known as present bias<\/a>.<\/span> F<\/span>or HE fees, the cost <\/span>is\u00a0<\/span>in the future regardless of the fee regime; however, a<\/span> subtle but important case of present bias may choosing to avoid the mental- and time-cost of reasoning through a complex decision like post-18 study, in favour of \u2018<\/span>going with your gut\u2019. The costs or benefits of the choice are in the future, while the costs of the decision-making process are happening right now.<\/span><\/p>\n

Helping students to make good financial decisions regarding university\u00a0\u2013 whatever the fee regime \"\"<\/span><\/strong><\/h3>\n

Ultimately, with or without the\u00a0<\/span>Augar<\/span>\u00a0reforms, our challenge is to provide financial information in a\u00a0<\/span>way that helps students engage with it and understand what the liabilities they are taking on now\u00a0<\/span>are likely to mean for them in the future.\u00a0<\/span>We use\u00a0<\/span>our<\/span>\u00a0<\/span>ACES framework<\/span><\/a>\u00a0to think about\u00a0<\/span>how to use behavioural science to support students; ACES stands for Affirm Belonging, Consider the Choice Architecture, Empower and Enable, and Support Social Connections.<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n

Below we outline so<\/span>me ways in which<\/span>\u00a0we think<\/span>\u00a0ACES can be applied to financial information<\/span> provision<\/span>; however<\/span>, these<\/span>\u00a0approaches<\/span>\u00a0are speculative and would need to be evaluated in context before being implemented.<\/span>\u00a0<\/span><\/p>\n

Affirm belonging<\/span><\/i>\u00a0<\/span><\/p>\n

Making financial trade-offs is challenging, a<\/span>nd for low-income students may be occurring in the context of broader worries about university and what it will be like for them.<\/span>\u00a0<\/span>Experiential (\u2018hot\u2019)<\/span>\u00a0information\u00a0<\/span>is equally, if not more, important to our decisions as<\/span> factual<\/span>\u00a0(\u2018cold\u2019)\u00a0<\/span>information<\/span>.\u00a0<\/span>We can consider how to provide<\/span>\u00a0experiential<\/span>\u00a0financial information to students, such as using ambassadors, videos or testimonials by students from similar background<\/span>s, and\u00a0<\/span>giving financial information in the context of\u00a0<\/span>other\u00a0<\/span>aspects of university life<\/span>.\u00a0<\/span>Knowing that others like them have navigated these decisions successfully\u00a0<\/span>and succeeded at university may<\/span>\u00a0free up mental bandwidth for thinking about financial trade-offs<\/span>.<\/span>\u00a0<\/span><\/p>\n

Consider the Choice Ar<\/span><\/i>c<\/span><\/i>hitecture<\/span><\/i>\u00a0<\/span><\/p>\n

W<\/span>e can help people make optimal financial decisions and engage with quality information by making communications short<\/span>\u00a0and to the point<\/span>.\u00a0<\/span>This<\/span>\u00a0information should include financial benefits as well as costs<\/span>\u00a0so<\/span>\u00a0students can estimate the differential between the average income of those who go into work straight from school and those who get a degree first.<\/span>\u00a0<\/span><\/b>In addition, p<\/span>eople find natural frequencies (1 in 5) easier to understand than percentages (20%).\u00a0\u00a0<\/span>\u00a0<\/span><\/p>\n

A number of<\/span>\u00a0studies suggest the importance of personalised or semi-personalised information, rather than either providing generic information or expecting student<\/span>s<\/span>\u00a0to navigate to relevant information themselves.<\/span>\u00a0<\/span>A<\/span>n<\/span>\u00a0example of this for the current student finance model is the\u00a0<\/span>Money Saving Expert\u00a0<\/span>student finance calculator<\/span><\/a>, which focuses on repayments<\/span>\u00a0(the actual total amount of debt is never mentioned).\u00a0<\/span>Individuals<\/span>\u00a0can input potential loan amounts, along with projected earnings and it will provide them with estimates of their total repayments over the loan term.<\/span>\u00a0<\/span><\/p>\n

Empower and enable<\/span><\/i>\u00a0<\/span><\/p>\n

Financial self-efficacy is likely an important component of students\u2019 propensity to engage in complex financial calculations: if a student has a sense that they are capable and competent at dealing with financial information, they are more likely to do so. Self-efficacy can be built up via direct experience or role models. <\/span>We could<\/span>\u00a0get<\/span>\u00a0<\/span>ambassadors to talk to prospective students about how they navigated the financial decisions,\u00a0<\/span>ask<\/span>\u00a0students to complete financial calculations that break things down into small steps, or encourag<\/span>e<\/span>\u00a0them to reflect on how they or their family have successfully managed other financial challenges.<\/span>\u00a0<\/span><\/p>\n

An important factor in the level of present bias an individual displays is the extent to which they feel a sense of continuity between their current and future selves<\/a>. Increasing students\u2019 empathy with their future selves<\/span>\u00a0by, for example, getting them to write a message to the person they want to be, or to describe their ideal future life,\u00a0<\/span>may help to motivate them to more carefully weigh up the costs and benefits<\/span>\u00a0that will affect that future self.<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n

We can also think about rendering<\/span>\u00a0costs and benefits<\/span>\u00a0to<\/span>\u00a0make<\/span>\u00a0it easier\u00a0<\/span>for young people to contextualise the impact on their future lifestyle of the need to repay their student loan. Breaking down incomings and outgoings to a level that is meaningful (for example, by weekly budget five years out from graduation<\/span>, including other indicative outgoings<\/span>) may help them to imagine the trade-offs.\u00a0<\/span>This could also be customised by asking students what is important to them; e.g. a meaningful job, opportunity to travel, lifestyle,<\/span>\u00a0<\/span>building up savings,\u00a0<\/span>and so on,\u00a0<\/span>and tailoring<\/span>\u00a0the advice accordingly<\/span>, and<\/span>\u00a0could be presented for several earnings scenarios,\u00a0<\/span>rather than just the average or median.<\/span>\u00a0<\/span><\/p>\n

Support social connections<\/span><\/i>\u00a0<\/span><\/p>\n

People\u2019s social networks have a huge impact on their aspirations, expectations and opportunities.\u00a0<\/span>Research conducted by\u00a0<\/span>LKMCo<\/span>\u00a0for King\u2019s<\/span><\/a>\u00a0suggests that parents are particularly concerned about the costs of university<\/span>, and whether university will improve their children\u2019s financial security in future. Working with parents and other influencers such as other family, friends and teachers,\u00a0<\/span>and considering how we can incorporate them into the approaches outlined above,\u00a0<\/span>is an important part of helping young people weigh up the costs and benefits of their post<\/span>–<\/span>18 options.<\/span>\u00a0<\/span>For example, w<\/span>e are currently\u00a0<\/span>doing a project where\u00a0<\/span>we\u00a0<\/span>give parents\u00a0<\/span>information\u00a0on\u00a0<\/span>HE subjects and pathways for their children<\/span>\u00a0<\/span>(se<\/span>e our\u00a0<\/span>blog<\/span>\u00a0post<\/span><\/a>\u00a0on the trial for more info<\/span>)<\/span>.<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span>Helping students make the best decisions for them\u00a0<\/strong><\/h3>\n

Ultimately,\u00a0<\/span>making financial decisions can be challenging, and\u00a0<\/span>people find it very difficult to weigh up costs and benefits that occur at different time points, especially when there is uncertainty<\/span>\u00a0about some of those costs and benefits<\/span>. Young people may find this doubly difficult because they have less experience managing money and may struggle to contextualise how much (or little) student loans will affect their adult lives.<\/span>\u00a0<\/span><\/p>\n

Augar\u2019s<\/span>\u00a0recommendations\u00a0<\/span>arguably\u00a0<\/span>make\u00a0<\/span>this calculation trickier<\/span>, which could mean fewer students are deterred from beneficial university degrees because the real costs have become less salient<\/span>\u00a0to them<\/span>. However, to the extent that we want students to be able to make informed choices about the best decision for them, we should be thinking \u2013\u00a0<\/span>whatever the funding and fee environment<\/span>\u00a0\u2013 about how we can facilitate this.<\/span>\u00a0<\/span><\/p>\n

Behavioural science suggests helpful ways we can help students to meaningfully engage with the information they are provided.\u00a0<\/span>Above, we have explored<\/span> some possible directions for initiatives. However,\u00a0its\u00a0important to remember that people\u2019s motivations and reactions to financial information can be complex and difficult to predict. It\u2019s always important to understand why and how we think a\u00a0<\/span>particular initiative<\/span>\u00a0may work, and to design a robust evaluation strategy<\/span>\u00a0that takes account of the experiences of participants, and the context, alongside trying to understand the causal impact of the initiative.\u00a0<\/span>\u00a0<\/span><\/p>\n

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______________________________________________________________________________________<\/p>\n

Bibliography<\/strong><\/h3>\n

Behavioural Insights Team. (201<\/span>5<\/span>) Behavioural Insights and the Somerset Challenge. Available at:\u00a0<\/span>https:\/\/www.bi.team\/wp-content\/uploads\/2015\/07\/Somerset-Challenge-Report1.pdf<\/span><\/a>,\u00a0<\/span>pg<\/span>\u00a016-26<\/span>\u00a0<\/span><\/p>\n

Behavioural Insights Team. (201<\/span>6<\/span>)<\/span>\u00a0Moments of Choice<\/span>. Available at:<\/span>\u00a0<\/span>https:\/\/www.bi.team\/wp-content\/uploads\/2016\/08\/Moments-of-Choice-report.pdf<\/span><\/a>.<\/span>\u00a0<\/span><\/p>\n

Bettinger<\/span>, E P; Long, B T.,\u00a0<\/span>Oreopoulos<\/span>, P &\u00a0<\/span>Sanbonmatsu<\/span>, L. (2012). The role of application assistance and information in college decisions: Results from the H&R Block FAFSA experiment. The Quarterly Journal of Economics, 127(3), pp. 1205-1242<\/span>\u00a0<\/span><\/p>\n

Costa, E. King, K. Dutta, R. and\u00a0<\/span>Algate<\/span>, F. (2016) Applying behavioural insights to regulated markets Available at:\u00a0<\/span>http:\/\/www.bi.team\/wp-content\/uploads\/2016\/05\/Applying-behavioural-insights-to-regulated-markets-final.pdf<\/span><\/a>\u00a0<\/span><\/p>\n

Financial Conduct Authority (2017) From advert to action: behavioural insights into the advertising of financial products\u00a0<\/span>https:\/\/www.fca.org.uk\/publication\/occasional-papers\/op17-26.pdf<\/span><\/a>\u00a0<\/span><\/p>\n

Herbaut<\/span>, E., and\u00a0<\/span>Geven<\/span>, K. (2019) What Works to Reduce Inequalities in Higher Education? A Systematic Review of the (Quasi-) Experimental Literature on Outreach and Financial\u00a0Aid ,\u00a0World Bank Group, Policy Research Working Paper 8802, Available at:<\/span>\u00a0<\/span>https:\/\/openknowledge.worldbank.org\/bitstream\/handle\/10986\/31497\/WPS8802.pdf?sequence=4<\/span><\/a>\u00a0<\/span><\/p>\n

Hershfield, H. E. (2011). Future self\u2010continuity: How conceptions of the future self transform intertemporal choice.\u00a0Annals of the New York Academy of Sciences,\u00a01235(1), 30-43.<\/p>\n

Kaiser, T.\u00a0<\/span>Menkhoff<\/span>, L. (2017) Does Financial Education Impact Financial Literacy and Financial Behaviour and If so, When? The World Bank Economic Review, Volume 31, Issue 3 pp 611- 630 Available at:\u00a0<\/span>https:\/\/academic.oup.com\/wber\/article\/31\/3\/611\/4471971<\/span><\/a>\u00a0<\/span><\/p>\n

Lim, H., Heckman, S., Montalto, C. P., &\u00a0<\/span>Letkiewicz<\/span>, J. (2014). Financial stress, self-efficacy, and financial help-seeking\u00a0<\/span>behavior<\/span>\u00a0of college students.\u202f<\/span>Journal of Financial\u00a0Counseling\u00a0and Planning,\u202f25(2), 148-160.<\/p>\n

McGuigan, M., McNally, S., &\u00a0<\/span>Wyness<\/span>, G. (2016). Student awareness of costs and benefits of educational decisions: Effects of an information campaign.\u202f<\/span>Journal of Human Capital<\/span>,\u202f<\/span>10<\/span>(4), 482-519.<\/span>\u00a0<\/span><\/p>\n

Money Advice Service,\u00a0<\/span>Behavioural Insights Team & Ipsos\u00a0MORI\u00a0 (2018) A behavioural approach to managing money: Ideas and results from the Financial Capability Lab\u00a0 Available at:\u00a0\u00a0<\/span>https:\/\/www.bi.team\/wp-content\/uploads\/2018\/05\/Financial-Capability-Lab-Report-May18.pdf<\/span><\/a>\u00a0<\/span><\/p>\n

Oreopoulos<\/span>, P. and R. Dunn, (2009), Information and College Access: Evidence from a Randomized Field Experiment. Available at:\u00a0<\/span>https:\/\/www.nber.org\/papers\/w18551<\/span><\/a>.<\/span>\u00a0<\/span><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By\u00a0Susannah Hume, Zoe Claymore and\u00a0Vanessa Todman |\u00a0 \u00a0The long–anticipated\u00a0Augar\u00a0Review\u00a0was finally released last\u00a0month,\u00a0and\u00a0raises many questions about the future of Higher Education (HE) funding.\u00a0The review recommends, inter — [Read More] <\/a><\/p>\n<\/div>","protected":false},"author":47,"featured_media":295,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9,13],"tags":[],"class_list":["post-713","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-behavioural-insights","category-student-engagement"],"_links":{"self":[{"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/posts\/713","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/users\/47"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/comments?post=713"}],"version-history":[{"count":16,"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/posts\/713\/revisions"}],"predecessor-version":[{"id":762,"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/posts\/713\/revisions\/762"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/media\/295"}],"wp:attachment":[{"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/media?parent=713"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/categories?post=713"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.kcl.ac.uk\/behaviouralinsights\/wp-json\/wp\/v2\/tags?post=713"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}