How Psychology Bolsters Financial Inclusion

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How Psychology Bolsters Financial Inclusion

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Behavioral science gives clues on how to help people with #FinancialInclusion @MetLife Foundation
Monday, December 28, 2015 - 3:15pm

CAMPAIGN: Financial Inclusion

CONTENT: Article

Presented by MetLife Foundation in collaboration with WSJ. Custom Studios, Multipliers of Prosperity takes a look globally at the challenges we face in confronting the issues of financial inclusion. The program dives deep into what’s working, questions what isn’t and finds the possible fixes. Most importantly, the program chronicles the triumphs of people who have taken the steps toward financial stability and the providers who have helped them reach those goals. We explore how financial stability is created, the kind of finance models that have succeeded, and innovative new channels and technology that make for smart solutions.

Humans are not entirely rational animals. That’s a classic principle of behavioral science. Even when we know what is best for us in the long term, “We have an incredibly strong bias toward receiving benefits in the present,” explains Josh Wright, executive director of ideas42, a nonprofit that employs behavioral science to solve social problems. “It’s just part of how we are as humans.”

This bias limits many of us from planning well for the future—including saving money. But behavioral psychologists and economists studying these principles are designing strategies to help people increase their savings rates.

In the last few years, microlending institutions and financial companies—particularly those working to increase financial inclusion around the world—are deploying new techniques based on the insights from the field of behavioral economics.

In the Philippines, for instance, people at the bottom of the economic scale tend to operate small businesses. Some take out microfinance loans to grow these businesses, a step that is often their first into formal financial inclusion.

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