Closing intention-action gap

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This article was published 28/09/2024 (553 days ago), so information in it may no longer be current.

We think we’re pretty good with a dollar. Yet, our actions suggest otherwise.

This is a key finding in a new survey of Canadians’ financial behaviour.

RBC’s recent Financial Habits Poll found in Manitoba — among other Prairie regions — 75 per cent of respondents say they have good financial habits.

Yet, it also found 72 per cent admit to actions over the last year that hurt their financial well-being.

“There is a paradox that we sort of see in the survey,” says Sumit Oberai, executive vice-president, personal banking and digital technology at RBC. “We say that we have strong financial habits, but we don’t necessarily behave that way.”

The survey asked questions to drill down on our money actions, too, finding 38 per cent of those polled did not set financial goals, 37 per cent did not do any financial planning and 34 per cent failed to monitor expenses.

That’s despite about eight in 10 indicating, if they practiced good financial habits, their overall well-being would improve.

This is hardly unique. We often know what we should do, but we do not necessarily do it — like eating healthy foods and exercising regularly.

This challenge of knowing-but-not-doing has a name in behavioural science research.

It’s called the “intention-action gap.”

“We want to do something. We intend to do something. We have the resources to do something. But we don’t do it, what’s going on there?” says Sasha Tregebov, director of Behavioural Insights Team (BIT) Canada, a research and consulting firm that works with government and non-profits.

First off, some results showing a financial intention-action gap are the result of economic realities. People know they should be doing one thing, but they cannot do it because they do not have the financial means.

“Sometimes, there is this narrative that people are not financially educated enough and then don’t do the right things,” he says. But their inaction is more the result of “underlying structural issues around income and the social safety net.”

Some recent data may indicate Canadians are facing more challenging times money-wise.

Among them is a recent JD Power study on credit card use, showing users are feeling mounting financial pressure, “a continuation of what was happening in 2023,” says John Cabell, managing director of payments intelligence at J.D. Power.

“We’re seeing a similar story to the U.S., where it’s quite clear there is an increase in revolving debt and a decrease in financial health.”

In the United States, credit card use differs from Canada. It’s a less dominant form of payment and most people pay their balance in full monthly. Instead, Cabell says American consumers often use cards to extend their budget.

The survey reflects this to some degree, finding in the U.S., 51 per cent surveyed carry a revolving balance. In Canada, only 36 per cent do. Still, that figure increased “significantly” from last year at 34 per cent, Cabell says, noting the survey is very large, so a two percentage point jump represents a clear trend.

Other findings also point to consumer challenges. Interest charges have increased, the number of people citing they’re financially healthy is down and average monthly spending has decreased.

Yet, struggling to take the right steps toward financial well-being are not just a problem for those facing economic challenges, Tregebov notes. “Good financial behaviours are things that a lot of people struggle with even when they’ve got good financial resources.”

Financial institutions, employers, governments and other organizations recognize this and are working to help easily engage in beneficial financial behaviour.

Tregebov points to the Save More Tomorrow program in the U.S., an initiative developed by behavioural economist Shlomo Benartzi, recognizing people have trouble finding money to save.

When we think about saving, “it’s hard because we have to give something else up,” Tregebov says.

Save More Tomorrow helps circumvent that. The program is offered by employers, allowing workers to elect to have some of their wage increases automatically go directly to their pension plans.

Other research points to using fresh starts to spur better habits.

“The idea here is that habits are really hard to change,” Tregebov says, adding U.S. economist Katy Milkman wrote a bestseller called How to Change: the Science of Getting from Where You Are to Where You Want to Be discussing how fresh starts like beginning a new job, moving to a new place or even the new year are ideal opportunities to try to launch a beneficial money habit.

Of course, plenty of reasons exist why financial change is so hard. Friction cost — or sludge — is among the top barriers.

“Everybody has got so much going on in their lives,” Tregebov says.

Humans, especially when busy, are hardwired to seek out efficiencies and avoid extra effort whenever possible. As a result, when faced with perceived complications to start a beneficial habit, “we’re much less likely to act,” he says.

Understanding these challenges, government and financial institutions are now leveraging artificial intelligence to encourage better decision-making and behaviours by making certain actions easier, Tregebov says.

RBC’s NOMI Find & Save is one of those efforts, designed to be as easy as possible to start using. It requires little effort from digital banking users to switch on, and it automatically tracks spending, budgets and saves with essentially a couple of steps, Oberai says.

“The great part is it automatically squirrels money to a savings account.”

He adds NOMI has been particularly helpful for young adults: “For many, it’s the first substantial step towards saving.”

Other financial institutions have similar applications.

Expect more and even better tools to roll out in the near future, all aimed at helping us efficiently squirrel away more acorns that we know—despite our actions—we need to stash more of for our future selves’ well-being.

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com