The Next Big Thing In Global Poverty: Changing Behavior

Elizabeth Harris | Forbes: Investing

How do you get people to improve their health, save more and work harder? For the World Bank the answer lies in soap operas, locking metal boxes and savings passbooks. Those are some of tools of the trade for the World Bank’s newly-formed Global Insights Initiative, which is charged with selecting and monitoring efforts around the globe that will “nudge” people to make better choices. The goal is to improve the effectiveness of the World Bank’s efforts by incorporating social and behavioral insights into its projects and government programs. I talked with Varun Gauri, head of the new group about what his team is up to and why helping people change the way they see their finances could be a first step toward helping alleviate poverty.

To understand how a behavioral approach differs from a traditional one, consider the problem of sanitation. The traditional approach would suggest that to improve sanitation, you have to subsidize latrine construction. But there are now a number of studies that show that millions of people the world over use subsidized latrines to store grains or hold livestock or even as shrines! Addressing the problem requires motivating people to change lifelong habits and to coordinate around new social norms. Some alternative approaches require individuals to make public promises to use the latrines, recognize and give awards to communities that are free from open defecation, and harness the universal emotion of disgust. The traditional approach—information, subsidies and construction—is not enough.

We look for four things in projects. First, is the project targeting a specific behavior and are there channels of communication or influence, or key decision points that can be used to change the behavior? Second, does the project have the potential to significantly improve people’s lives? We care about the development impact of a project. Projects that enhance basic human capabilities and human rights have a high priority. Third, is the partner we are working with, perhaps the government or an NGO, invested in project? That is important for sustainability. Finally, does the project lend itself to evaluation? Determining which behavioral interventions work, and which do not, is a public good and we believe that providing that public good is part of our mission.

What is the biggest challenge when it comes to changing—and hopefully improving—how people make financial decisions? Why have traditional financial literacy efforts failed to solve the problem?

Conventional financial literacy programs in low-income countries have had limited effects. Those programs usually assume that providing information to people will help them become better savers and investors. But much of the time, information is not the problem. Most of us have intention-action divides. We know we are supposed to save for an important purpose, such as retirement or for our children’s education or for health emergencies, but for a variety of reasons we do not follow through. We tend to think about what is immediate and day-to-day and lose track of our long-term savings goals. Many of us are very attached to spending habits that are hard to break. It’s also true that the presentation of financial literacy programs is usually complex and uninspiring. Consider a couple alternative approaches.