Changing money mindsets: Applying behavioral science to Fintech with Kristen Berman

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This is a podcast episode titled, Changing money mindsets: Applying behavioral science to Fintech with Kristen Berman. The summary for this episode is: <p>Rarely, if ever, are we rational when it comes to money. Too often, financial solutions rely on users doing the right, rational thing versus optimizing for human behavior. Enter Kristen Berman, a Behavioral Scientist so well-versed in the irrational aspects that drive human behavior that she named her consultancy Irrational Labs. In this episode, we discuss how behavioral finance can be applied to personal finance, collaboration/family finance, and general financial philosophy to create more effective financial solutions that align with human behavior and decision-making - to make us do what we want to do but might not do so willingly.</p><p><br></p><p>Key Takeaways:</p><ul><li>[00:03&nbsp;-&nbsp;00:54] Introduction, meet Kristen Berman</li><li>[00:54&nbsp;-&nbsp;03:08] The intersection of behavioral science and FinTech consumer engagement</li><li>[03:08&nbsp;-&nbsp;05:05] The user experience, incentives, and how behavioral science can enable financial health and wellbeing</li><li>[05:05&nbsp;-&nbsp;07:13] The spectrum of incentivizing behavior, helping people for the right reason vs the wrong reason(s)</li><li>[07:13&nbsp;-&nbsp;10:24] The role of consumer inputs in determining incentives for their goals</li><li>[10:26&nbsp;-&nbsp;12:17] A north star as your financial moral compass, orienting toward responsibility and the right reasons</li><li>[12:17&nbsp;-&nbsp;16:02] A Noom-type approach to empower a financial user experience, the power of habits</li><li>[16:04&nbsp;-&nbsp;18:15] A goal gradient, making goals achievable and encouraging success</li><li>[18:14&nbsp;-&nbsp;20:27] How social networks and reinforcement impact people's financial habits</li><li>[20:27&nbsp;-&nbsp;21:57] An increasing openness to financial transparency and building community</li><li>[21:57&nbsp;-&nbsp;25:28] 50% of millennial couples don't share bank accounts, rethinking that context</li><li>[22:42&nbsp;-&nbsp;23:49] Joint accounts and relationship quality, discussing values</li><li>[25:28&nbsp;-&nbsp;28:17] The opportunity for a family financial account and app, the idea of millennials as the "sandwich" generation"</li><li>[28:17&nbsp;-&nbsp;32:02] Timing and a first line of defense</li><li>[32:02&nbsp;-&nbsp;34:18] How to change mindsets and habits, becoming financially aware</li><li>[34:18&nbsp;-&nbsp;36:15] ESG and behavioral contagion, climate-friendly investment</li><li>[36:15&nbsp;-&nbsp;38:32] Kristen's career and path to FinTech</li></ul>
Introduction, meet Kristen Berman
00:50 MIN
The intersection of behavioral science and FinTech consumer engagement
02:13 MIN
The user experience, incentives, and how behavioral science can enable financial health and wellbeing
01:57 MIN
The spectrum of incentivizing behavior, helping people for the right reason vs the wrong reason(s)
02:07 MIN
The role of consumer inputs in determining incentives for their goals
03:11 MIN
A north star as your financial moral compass, orienting toward responsibility and the right reasons
01:50 MIN
A Noom-type approach to empower a financial user experience, the power of habits
03:44 MIN
A goal gradient, making goals achievable and encouraging success
02:10 MIN
How social networks and reinforcement impact people's financial habits
02:13 MIN
An increasing openness to financial transparency and building community
01:29 MIN
50% of millennial couples don't share bank accounts, rethinking that context
03:30 MIN
Joint accounts and relationship quality, discussing values
01:06 MIN
The opportunity for a family financial account and app, the idea of millennials as the "sandwich" generation"
02:49 MIN
Timing and a first line of defense
03:45 MIN
How to change mindsets and habits, becoming financially aware
02:15 MIN
ESG and behavioral contagion, climate-friendly investment
01:56 MIN
Kristen's career and path to FinTech
02:17 MIN

Speaker 1: Talk about it like it's an addiction, like it's a gateway drug, that necklace.

Kristen Berman: Totally. Once you pop, you can't stop.

Jason Felger: Rarely, if ever, are we rational when it comes to money, but too often financial solutions rely on users doing the right rational thing versus optimizing for human behavior. We're speaking with Kristen Berman today, someone so well- versed in the irrational aspects that drive human behavior that she named her consultancy Irrational Labs. We're discussing how behavioral finance can be applied to personal finance, collaboration/ family finance, and general financial philosophy to create more effective financial solutions that align with human behavior and decision making to make us do what we want to do, but might not willingly do.

Speaker 1: Kristen, I'm super excited to have you here. This is a topic that I think everyone is really curious about, and that topic being just how do we infuse behavioral insights, psychological insights, and what we know about the uniquely human nature of the consumers of FinTech products into how we build those products, how we market those products, how we engage with people? So a pretty overarching question to kick us off. How do you think about where this really fits into the puzzle of consumer engagement with FinTech? How do you think about infusing behavioral science?

Kristen Berman: So behavioral science is basically about getting people to do anything. It's really an art of" How do we help people do the thing that they want to do," and most of the time the thing that they want to do in the future is conflicting with a thing that's easiest to do today. So if I want to improve my financial situation, it is also easier for me to spend money and go out to lunch today versus maybe pack my lunch in the morning. And so the essence of behavioral science is really trying to resolve this idea. It's called lots of things in behavioral science, intention, action gap, say/ do gap, where we say that we want something and yet today we just do something else. I like to ask people to think about staying up late and watching Netflix instead of maybe going to sleep, getting ready for the early morning meeting. This is about saying that you're on a diet and maybe having the sweets that are in front of you in the office. These are things that affect us all. They affect me as well, and as a FinTech product, really, the opportunities to design a world by which it's easier for people to do that thing. I think the general hurdle that these folks have to go through is that most of the time when you ask me questions about my behavior and my intentions, it's not clear that there's a gap. I'm not going to tell you, " Look, my intention is to do this thing," but it's sometimes I forget. Sometimes there are other things distracting me. And so the world is pretty noisy, and I think that's really where some FinTechs get tripped up is that it's hard to really discern what people will actually do from customer interviews, and that's where behavioral science can fly in and help people design these products that actually help them do the thing they want to do.

Jason Felger: Is that everything from prompts of, " Hey, you should save a dollar instead of buy that Starbucks?" Is it part of the entire user experience? Is it other types of incentives? How do you think, particularly in the realm of finance for individuals, maybe it's a question of depth. Are those surface level types of things that can be built into the product, or is it really at the core of the bones of what that whole user experience is like?

Kristen Berman: It can be both. I think the most powerful is when it's built in. The classic example here of how behavioral scientists helped financial health and wellbeing is just automatic enrollment for retirement savings and/ or don't yet have a product that does this as successfully, but automatically from your paycheck, putting money into your savings account. Instead of nagging me to save, it should happen automatically. We should be building this in to help people automatically save, which is not a nag or an incentive. It's a one- time decision that people make that so they don't have to make future decisions. So idea one is having FinTechs build this into the core. If you don't build it into the core, now we're talking incentives. This could look like roundup, so you're basically nagging me once in a while. I say, " Yes," and now all of a sudden. When I'm spending money, a couple cents goes into savings. By the way, these things tend to save people less than the promises, and so I get nervous if the roundup isn't big enough that people are thinking they're saving, and they're actually not. Or it could go into the classic incentives where you're helping people with a discount or a reward or a lottery to do the thing that they want to do. There's this Long Game app. The idea there was in order to get people to save, you'd play some lottery type games, slot machine type scratchers, and some of your money would go directly into savings from your winnings. And so this is an incentive that gets me to play along and save. Now, again, these are very, very nice. Ideally, you just build it from scratch, and you're doing a direct to deposit from your paycheck savings.

Speaker 1: I'm curious what you think about incentives, actually. I mean, there's so many different ways to do this, as you talk about, we could put you in a lottery and there could be winnings. There could be just the gamification of it, right? You're a character in game and you do X, Y, and Z and great, you win the game. There might not be anything monetary there, or I could just show you like, " Hey, this is the impact of saving an extra dollar today. You'll be so much richer 30 years from now." And I'm just curious on the whole spectrum of all the things that we can do to incentivize behavior if we don't automate the action, what do you think is most effective, or do you really think about categorizing groups of people and what motivates them?

Kristen Berman: Yeah, it's a good question. I think incentives, in general, are tricky and many times they can backfire. So I'd prioritize. We say sometimes, " Helping people do the right thing for the wrong reason," and the wrong reason is this incentive. So I'll list a few wrong reasons here, and some of them are monetary discounts and rewards, and some of them are social proof and scarcity. So if you tell me that there's a long line of it or there's a wait list, in theory, I should not do it. It takes my time. It's cost and utility. I don't even know what it is, and it's uncertain, and yet people do it because it's scarce, because there's some norm that other people do it. So that's also an incentive. And so when we're building an incentive model, I think that the eye- opening thing that startups could do or FinTechs could do is really try to drive the norm that other people are doing this. It's an attractive thing to do, and so the right thing for the wrong reason is not, " The product is good and will save me money, reduce my debt, et cetera." It is, " Other people are doing it." And that's actually really hard also to admit like, " Oh, why are you doing this thing?" " Because my neighbor is doing it. My friend is doing it. My family is doing it." Generally, when we're thinking about right thing for wrong reason, there's so much fun in brainstorming what the wrong reasons are, and some of that can be rewards, but I like to think about the social proof, the loss aversion, the scarcity also being wrong reasons to get people to act today. And again, we're going back to the first idea, which is just your goal is to get me to do something, anything. We are all busy people. We have families, we have jobs, we have Netflix. You have to get into my task list today. So that's really the inaudible what we're trying to do, is help people do the thing today that they could do tomorrow, and tomorrow is never.

Jason Felger: How much of that could be or should be driven off of what the consumer sets out as their own goals? The inputs into the system or the product, if you will, versus just the baseline behavioral improvements, " Because everybody should be saving more or everybody should be paying off high interest debt when they can." It's really a question of the consumer's inputs into the product so that the product can really do what, hopefully, it is designed to do from an improvement in just value- add standpoint.

Kristen Berman: I think this is where behavioral scientists tend to differ from the econ model. In the econ model, I come in knowing exactly what I want, and I'm going to measure if the product price and features match what I want, and that classically my willingness to pay is dependent on that utility. In a behavioral science world, we say, " Preferences are created." Now I may not know exactly how much I want to save or if I want to save. I may not know how much I should be paying off my debt or when, but yet it's created on the spot. So a firm, basically one of their big innovations was they'd put on the landing page something like, " Instead of the full price of the product," it's" Pay as little as." And so merchants would try to sell a washing machine instead of it being $1, 000 dollars, it was" Pay as little as$ 99 a month." Now people didn't come in thinking, " Oh, I want to pay as little as$ 99 a month." A firm created that preference on the spot. And so I think the same thing really should be applied to goals as well. People don't come in saying, " I need to save$ 20 a month." We're creating those preferences by the anchors in your product, by how many norms it is, by how easy it is." One of my favorite examples is actually from a health perspective where you have doctors. Doctors do not want to over- prescribe opioids. Of course they don't. They're experts. They understand we're in a crisis, and yet the average prescription for this university hospital was 30 pills per prescription. This is a lot. And you ask, " Why are doctors over- prescribing?" And they tell you, " Look, the patient needs it. They're in pain." Researchers are actually looking for what could be the incentive for why people are over- prescribing looked at the environment that they're making the decision, the app, Epic- like software, and found that the gray text default was 30 pills. Doctors aren't saying they want to over- prescribe, but they're just following the implicit norm of 30. When the norm was changed to 12, now more doctors are prescribing 12, less doctors are prescribing 30. And so we're basically creating the environment, and doctors are creating their preferences based on the environment. With great power comes great responsibility. This puts a lot of power on UX designers, a lot of power on FinTech startups to actually create an environment that helps us achieve our goals, and this is generally the behavioral science perspective is that in the moment you're creating preferences versus I'm coming in saying, " I would help doing X and Y." We don't know. Maybe there's a small percentage of people who come in with that. I don't want to discount that, that there are a small percentage of very highly rational and motivated humans. But the rest of us, we're very open. Our minds are open to be changed by the design of the app.

Speaker 1: This is such an interesting tangent because part of our conversation internally is, " Where's the responsibility around maybe trying to orient people towards good goals, better goals, potentially?" Right? Yes, you want to save up for this very near- term vacation, but I would sure like you to think about retirement. You say doing the right thing for the wrong reason. I wonder, how do we help people orient or make sure that they're not doing the wrong thing, when you gave that a firm example, in theory, for a good reasons, right? How do you think about where that responsibility lives?

Kristen Berman: I don't think we have a solution on the market that motivates people to save for retirement that isn't right for wrong. So the best example we have for retirement is obviously the automatic enrollment, and people are not as rational about this. This is just the norm that's set. And so the other really great example we have for retirement is the FIRE movement. Probably listeners know about this. It's a really incredible way to set norms about how you live your life, and once you're part of the fire movement, people give feedback on what you're spending, how you're spending, how you're designing your life. And so there's some level of paternalism that goes into things like really helping me decide for the long- term retirement savings, is a long- term upside, " Today I have to make a trade- off." It's really hard to ask someone to prioritize that over a vacation. And so the solutions we have in the market are actually not asking you to prioritize that over a vacation. They're asking you to either not do anything, which is a full automatic enrollment, or join a community of people that you like to hang out with and you get to share your life with. They're not selling you in retirement as much as a lifestyle. I am skeptical on us being able to change people's point of view with just a rational argument of" Save for the future versus a vacation," and more excited about the potential to create things that people actually really want to do. FIRE is a really motivating group of people to be part of a community and share your spending. It's exciting, and you're not forcing people into it.

Jason Felger: I guess when I envision the products that you're describing and the types of approaches that you're describing, Noom is what comes to my mind. Obviously, not a FinTech or a financial example, but something in health and weight loss in how they engage users and the experience in that application. A twofold question here, which one is, does the Noom type of an approach embody some of what you're talking about? And then also, do you think that type of an actual experience, that type of a habit- forming application and technology is part of what may resonate within the FinTech world, whether it's savings or personal finance or just even retirement?

Kristen Berman: Yeah. Fintech has a lot to learn from health and dieting for a few reasons. Noom is one of them, but in general we have language for things. So basically, the only thing that FinTech really can talk about when we think about changing our spending is budgeting. That's the one word we have. That'd be equivalent to the only thing you could talk about in dieting is calories. We have way more words than just calories. We have low- carb, we have intermittent fasting, we have a general language in dieting for this. It can be very rule- based. Don't eat at this certain time. You only eat from a smaller plate. So generally, I would say FinTech should learn from dieting. Noom, specifically, is interesting. The thing that I really like about them, number one, they have this really long onboarding, which creates my preferences and desire. The rational thing is it's a short onboarding that gets you immediately to value. This is a classic product development thing, is time- to- value. Noom's time- to- value is pretty long, very long, and yet creating really a preference for this. If you go to something like a webpage selling vitamins, where's their CTA? You actually have to scroll down and that you're like, " Tell me what's going on." And you're scrolling and scrolling, or they show a video at the very, very end of the video, they're forcing you to listen to the highly motivating pitch to increase your motivation to do a thing. I think that goes along the lines of we're creating people's preferences, and again, that's what Noom does pretty well. The other thing I really like is it's a limited time program. Probably their marketing and LTV calculations hope that you stay forever. But the reality is they're telling folks it's a three month or a four- month program. Most people can do most things for three or four months. It's not something you have to do forever. And by doing that, you're increasing the likelihood that you opt in. And so I would love to see a FinTech that says, " Look, we're a one- month product. We're going to look at your budgeting. We're going to get you set up to pay off as much of your debt as you can at the end of 30 days by decreasing your expenses as much as possible. And the hope is that you're going to pay off a lot of money at the end of the month, and by the way, one or two of those spending habits may stick." If one or two of them stick, that's really wonderful. You've decreased your spend overall. The idea that you have to sign up for something forever is just a funny thing. So that means everybody fails because people most likely end the product at some time, and then you look at yourself like a personal failure. " I can't believe I couldn't do this budgeting app. I'm canceling Digit." By the way, never canceled Digit. It's very nice. So in general, yeah, I would say we can learn a lot from the dieting thing. By the way, this is also where startups can really out- compete large corporations. It's very hard for large corporations to have a point of view. Why? You have a lot of people. You have the legal team, you have the marketing, you have the products, you have the research, and everyone's fighting, and so what you get is vanilla FinTech budgeting platform versus a FIRE type movement, which has some really strong point of view about how you manage your life. Dave Ramsey has a really strong point of view about how you manage your spending. It'd be great to see more FinTechs have a strong point of view that people can opt into, versus you decide. " You know the best. You decide." Dieting just doesn't take that approach. Dieting has a point of view. " This is how you could live your life," and it's not going to be forever, but it's going to be for short period of time.

Speaker 1: It's so neat because I bet if you pulled... If FinTechs, I mean, they would normally say, " Hey, we're going to try to make the aperture as wide as possible because we want to get as many people onto the platform as possible," but the way you're describing it, they lose the opportunity to customize people's preferences and to engage people in a way that actually gets them to engage with that platform long term. This might be a bit of a detour, but one thing that I've always found fascinating is there's so many different philosophies in economics, versus a Suze Orman push, right? And one of those things I've heard of is the snowball theory of debt. Basically, you have a bunch of debt. The logical thing economically, pay off the most expensive debt, get rid of that interest expense. And the philosophy from personal finance gurus is almost the opposite. It's like, " Just pay off the smallest balance. Get the dopamine hit of doing that, then do the next one." And I always wonder because it doesn't feel like the right goal from a financial perspective, but maybe, to your point, are we creating a goal which is more achievable where you will actually feel success?

Kristen Berman: The snowball effect does fit more people's mental model of, " I'm doing a hard thing. I need some progress." Now you can achieve something in a short period of time versus maybe a little bit more over a longer period of time is just much less motivating. So snowball from an intuitive perspective makes sense from increasing the likelihood that people opt in to driving a real goal completion model. There's something called goal gradient is when you're closer to the goal, you go at it harder. The latest study I heard on this is if you're in a swim lane and you can see the finish line versus you're going away from the finish line, you're swimming faster when you can actually see the finish. So this works for most things. You look at time completion for marathons, not that everyone just magically finishes at four hours, you see the four hours, that's your goal, and you're going to run a little bit faster towards the end to get to this four- hour mark or this two- hour mark for the half- marathon. In general, this snowball effect aligns with that. To my knowledge, and I'm sure there may be more recent studies, there actually hasn't been a controlled study, an RCT on snowball versus another method like the classic one of just paying it by the lowest interest rate or any other method, really. There's been a fair amount of qualitative or general pre/ post analysis on this, but to my knowledge, I haven't seen the RCT on this, so I don't want to declare that snowball is the answer. Most of life things, happen that you don't expect, and so while from behavioral perspectives, there's lots of reasons to believe that people would opt into this and it's better, I would love to see the RCT on it.

Jason Felger: How do social networks, not social networks, but a person's social network and social reinforcement, pressures, positivity, how do those play into what you're describing, whether that's in product or just through forming the habits themselves?

Kristen Berman: Social pressures, for most of our bad habits, you see people buying purses and shoes and Instagram mads for things, and you want them and your friends have them. There's a lot of ways to rationalize why you should also spend. So I think norms generally contribute to an increased amount of spending. There's something called the hedonic treadmill, which is basically, " Once I get a bigger apartment, am I ever going to downsize my apartment?" It's going to be very hard. By the way, getting a bigger apartment is probably one of the bigger decisions that you'll make because you won't downsize. You've just now increased your cost of living for the biggest expense that you'll have forever, and people think, " Oh, no. I could decrease." But when you get used to something like this, you're on this treadmill. I think this is one of my general deep fears in life is getting on the treadmill. So I personally don't buy any jewelry. I have zero jewelry, no earrings, no necklace, and I'm very nervous that if I start buying a few things and be like, " Oh, of course, I just want something else. This looks pretty. Okay." One thing I've done for myself is make rules about the types of things I'll engage in because if I do see my friends with jewelry and I like it, the norm is contagious. There's a nice-

Speaker 1: You talk about it's an addiction, like it's a gateway drug, that necklace.

Kristen Berman: Totally. Once you pop you can't stop. So there's a word called behavioral contagion. Robert Frank, who's a lovely author, talks a lot about this type of social norm contagion, by which I am who I surround myself with. So if I'm friends with people who smoke, I'm more likely to smoke. Spending is the same contagion. I think this is why, again, the FIRE movement is so fascinating because you're changing your social norm to be by people who are maybe modeling better behavior. So if we were to do an intervention for folks that's not at base, this would be a big app, I would move you to a group that has your same goals. So if you're trying to save for college or if you're trying to save for a house, I would put you with other people also trying to do that thing so that you're sharing your process, your pro- tips, and you're not surrounded by the folks who are maybe spending more money than you would want to.

Speaker 1: It feels like people are more open about money, to detour from this, but it's a very relevant, similar topic, right? Certainly, around investing, but even just generally, it seems like people are just more comfortable opening up about, "This is how much I've saved, this is how much I spend." Does that feel true? Are we just looking at some specific communities? And if that is true, to go back to the FinTech founder listening, should they be developing community in their app? How do they plug themselves into that?

Kristen Berman: I think people are very good at sharing when they're doing two things. One is complaining, and two is sharing tips. So basically, if you've learned something new, you want to share with other people, and the community will appreciate you. I think the intuition when you're forming community is to have an open text field and say, " What questions do you have? What help do you need?" It's very difficult for people to raise their hand and ask for help in most domains. We should be asking for help all the time for most things. It's an obvious point of view of just like people are willing to offer help on Reddit for things, they want to share their point of view. I think communities for FinTech should not be just focused on the people who need help, but they're focused on the people who can give help, and you can share how smart you are. I actually would love to do a survey to say, " Do you know how much your mother has saved? Do you know how much your sister has saved?" I would bet most people don't. So while it's still something that I think it's growing in popularity and norms to be able to talk about this, and by the way, I think this is especially probably true for more of a Gen Z population and/ or a lower SES population. When you don't have a lot of money, you do talk about it because it's so prevalent and top of mind. You're living paycheck to paycheck-

Jason Felger: Kristen, we had a hysterical conversation around the office the other day because Yolina throughout this stat that somewhere around 50% of millennial couples don't share a bank account. Then, of course, that just completely unraveled into every one of us talking about how we do or don't manage our bank accounts with our spouses and do we share credit cards? But I can't get that statistic out of my mind, and so I'm really curious, can you maybe translate that into why do you think that that is the case? How do you think about that as far as, is that a good thing or not a good thing, as it pertains to those couples and just, in particular, families managing their finance and those financial tools?

Kristen Berman: Great question. There was a recent paper that came out that says sharing a bank account does increase or is correlated with better relationship quality. I'll try to explain different ways to manage your money. There's one world which is purely individual, so my paycheck goes into my individual accounts, and then we're going to split rent, and each is going to contribute a little bit to rent. And this is just the individual model. There's another model where your paycheck goes into your individual accounts and then you put a fixed amount each month into a joint bank account. Let's say$2, 000 a month goes into this joint bank account, and you use that money to do shared expenses. Actually, there's four models. So the third model, hopefully folks aren't following, is different where your paycheck goes into a joint account and then a fixed amount goes into your individual accounts, and we'll come back to that one as my personal favorite. And then the fourth one is all money goes into your joint account. There are no individual accounts. So the finding is basically when you manage your money from a joint account, so three and four, you are more likely to have this kind of relationship upside from it. The theory here is that you're living a joint life and you have to then discuss your values. So at some level you're going to talk about the things that you want, the things that you need, and have this type of discussion. Now why don't more people do this if this has such interesting upside? For a variety of reasons, I would say the biggest effect behavioral science usually attributes things to, which I would say is probably true here, to, is just, " Look, the status quo is not that. If you're going to partner up with somebody, you both have an individual account." Yes, you could create a joint account, but, oh man, in order to make the change, you'd have to go to your payroll provider and change where your paycheck goes. That's work. The path of least resistance is to do the thing they were doing yesterday. And the thing you were doing yesterday is the thing that you were doing the day before. And so most of the time we're not making this point- in- time decision that says, " Look, I'm going to change the structure of my bank accounts to increase my relationship happiness." Probably push people listening to think about at that point, you're getting married, you're getting engaged, to have the conversation and actively redesign the structure of your finances to match how you want your relationship and values of money to be. Sadly, it's just something we just don't do. So you do the thing you did yesterday. My hypothesis is most people have two individual accounts, paycheck goes in there, and you contribute to a joint because that's just easier than changing our paychecks, so why don't people do it? I think structurally it's difficult.

Jason Felger: I can't speak to the behavioral science part of it, but just like the structural aspects of this, it's hard. It's a pain in the ass for you and your partner or spouse to go through that process. It's not really how bank accounts are structured, it's not really how information is transferred between different applications. There's just a lot of legacy infrastructure that makes it hard, even if you do have the desire to make those changes, to have somewhat or fully integrated financial views or financial lives together.

Kristen Berman: I would love for there to be a Chime- like account for families. It seems like if you have a Chime and Varo and these kind of challenger banks, it's always you have to build the table stakes of a financial app, and so it's always going to be the fourth thing, the fifth thing on the big roadmap, never the first thing, and yet there's likely an opportunity for somebody to build an app where it's the first thing as part of the product positioning for spouses, for joint accounts, for families. And we've seen that really with Capital One. They've done a very nice job of marketing kid accounts and making it really easy for a child to open up account. Generally, you have to get a parent to do the signature under 18, you have to go in, and they've just made it simpler. They've started marketing it, not really functionally changed, just how they're positioning it and making it easy for you mentally to open that. So I think that's likely an opportunity for a challenger bank is to get that into their core positioning versus a one- off feature that's launched four years after they've gotten a market share.

Speaker 1: That's a relevant angle. One of the things we have heard the millennial generation called is the sandwich generation. There's a sandwich between now their parents that they have to manage the finances for at some point and their kids, and we see a lot of great tech for our kids to have accounts and allowances, and you can manage them, and that's wonderful, and we've seen a lot of great innovation around 529 accounts and just helping you save for the kids, and the whole family contribute to that. But to have any of that really integrated, to have some perspective of, " This is how I'm managing the account of my father or mother, or this is what I'm putting into the accounts of my kids, this is how I'm going to thinking about the dynamic that I have with my spouse and the money we have leftover at the end of the day for our individual retirement," it's always felt like these are just really disjointed and hard. If you're trying to think about just your clear holistic financial picture, they're so divorced from each other. Does that feel true?

Kristen Berman: I have a dad who I'm managing all of his money. The pain is real. I'm calling up and say, " Can I please have the code? Can I have the code to log into your US bank?" Finally figured out I can add a second phone number without me being on of his account. The system is not set up to make it easy for people to use. By the way, also, if you're going to be a co- signer on the account, then his credit score affects my credit score, which is just also another lock- in that now I have to really be careful managing his money because everything I'm doing is affecting my long- term, and so the system is not set up for this, and likely a big opportunity. Before I started managing my dad's finances, I didn't realize how bad it would be. So, it would be hard for me at that decision point to opt into a product. Only after I've started managing his finances do I realize how terrible it is, but now I'm already managing his finances and I've got the system down. So I think there's some level of innovation here is" How do you position something to somebody who doesn't yet know the pain?" I only have two parents. I'm only going to have to do this twice. It's a difficult sell for a FinTech to come and prove to me before I'm making the decision to manage it that I need this app.

Speaker 1: We've had a lot of great conversation about how do you just make the product more functional? How do you actually embed all of these great nuances into the product to customize preferences and drive people toward great goals? There's just a question of marketing, right? We have a product. What about the messaging, things that they see when they open an email from us? And I heard you talk before about negative versus positive messaging, right? What are some of the things that you've seen people do really well just as it relates to that messaging?

Kristen Berman: First, let's talk about timing for a second. I think messaging can get us so far, but if you're not asking me at the time that I'm ready to adopt, it's going to be a hard sell. We did a nice experiment with the bank where we just asked people at the point that they were setting up a loan if they wanted to also open a savings account and round up a little bit of their loan into a savings account. This is, by the way, done by Common Cents Lab, which is a Duke University lab, you'd round this up and put this into a savings account. And this was done at the point of the loan opening. And then in another experiment, we also asked people, " Do you want to round up your loan?" And this was in the middle of their loan. They've already been paying it for three or four years, and you ask them, " Do you want to round it up?" The opt- in rates for the first one, which is at the point that I'm setting up a loan, were in the mid 30s. The opt- in rates were below 10 for when I'm just randomly asking you to do a thing. And so timing does matter, right? And we experimented to different ways to do this. In one condition, we had loss aversion where it was like we could get small amounts of people more to opt into the first one when we framed it like, " At the end of the loan term, you'll have$1, 000 dollars." That's much more appealing than" Pay me$ 19 every month," when we're framing it, " Here's the thing you will get at the end." But those are small relative to the timing effect for these two different conditions. So first line of defense, which I think is underappreciated by startups and maybe more by marketers, is just your distribution channel should be built into your product and really aligned with actually how are you going to get people and can you design for the distribution channel? And then the second is copy and framing does matter. Choice architecture does matter. We did a nice experiment with Study. So basically, most FinTechs have the problem you have to link your bank account. How terrible. You have to type in your password and your username, and you likely forget this. It's a big point of friction. And so we said, " Could we just change the call to action that people are doing when they're going through this process?" And before that, Study had tested a$ 10 incentive. So our goal was to beat the$ 10 incentive. So we tried a bunch of things. There's two things that worked much better than the control. One was just an accept or decline. So basically, the study was offering a new feature, an income tracking feature, and to get that income tracking feature, you'd have to sync your bank account. Study is basically a nice app that helps people manage their gig work. It would show you more opportunities for you and also show you the income you had. But in order this, you have to do this hard thing that you'd imagine, accept or decline. People would be like, " I'm going to offer them the ability to say no and formally decline." That's crazy. Why would I do that? But obviously, more people said yes when they're forced with this decision. Why? Because you're giving up something. People don't want to give up the opportunity for a future benefit. So by saying, " Decline," you're really making a big decision. And then the other condition that worked even slightly better than the accept and decline was going back to this goal gradient of you're not complete. So it's not that people really wanted this income tracking feature. It's just they weren't complete in their setup. So we had an error message and said, " Look, you're not complete," and people, right for wrong, they probably want the income tracking feature, but the wrong thing that they want is just to finish setup, which we all do, right? You don't want something to be an error in an app that you're consistently using. And so this is some of the gaming innovation is both of those beat the$ 10 incentive. By the way, Richard Mathera did this on our team and it was also sponsored by the Common Cents Lab. In general, these type of framing innovations can get people, again, going back to the first comment, just to do anything. And still the goal is to get us motivated enough to do something today.

Speaker 1: To go back to Noom for a hot minute, one of the things Noom says is, " Hey, we're going to change the way you approach dieting. We're going to change your behavior towards food. We'll give you a healthier one." That's their promise, right? And I wonder if to some degree, a lot of what we've been talking about is, " Hey, we're going to do the right thing. We're going to do it for the wrong reasons. We've got a lot of great ideas about how to get you there." Is there any way to just change people's perspective toward money? Is there an opportunity just to reorient them so that they have more of just an internal joy from having more money saved or from feeling like they're doing good things and their money is accumulating, or that they're spending in a better, smarter way that combats the potential social contagion you discussed? Is that true or is it maybe just more of the territory of social movements and nonprofits, and it just doesn't sit so well in the FinTech landscape?

Kristen Berman: I think changing mindset is good. I think the question we should ask is just how you do it. I'm sometimes skeptical of James Clear, who wrote the Habits book, some of his work, he tends not to cite people. But one idea that I do really is really consistent with the behavioral literature is the question is" Do you have to change my mindset," and his example is running, " in order to become a runner, or can you go running, and when you go running a couple times, now you have an identity as a runner?" So does the mindset change come first and then the behavior, or does the behavior and then the mindset? And his opinion, which does have research against it is like" Doing the behavior can get you to have the identity of somebody who does the behavior." I'm skeptical to say that changing my mind and then I do the behavior is the right linear flow. I'm not saying it doesn't work, but I think that's the pullback of saying, " Changing my mind may not be required for me to have the identity of doing the thing. It could be that if you just get me to save a little, get me to pay off my debt, that then I become somebody who pays off my debt. Then I become somebody who is somebody who has a debt- free life, somebody who's financially aware, somebody who gives their friends advice about how to do this." I'm thinking that somehow self- efficacy is built is when you do the thing you look back at and you don't want cognitive dissonance. You would never say, " I'm the type of person who does that," once you do the thing versus, " That's not me." I think there is a world for changing mindsets and hearts and minds. I think it's very difficult and probably an easier way to do is to nudge me to do a behavior that creates the movement and the mindset.

Speaker 1: Is it proximate to ask about the ESG stuff here, too? There has been such a momentous social effort to say, " Hey, please put ESG at the forefront of your mind." To your point, it doesn't naturally evolve in this sense that you just start investing in climate- friendly things and then happen to be a climate- friendly investor, but you almost have to go out of your way to say, " I will only patronize brands that I know to be clean beauty products or what have you." Do you have maybe any perspectives on those movements?

Kristen Berman: I think the big upside was when financial advisors included, so structurally, it was easy for me to say yes to an ESG product. Remember back in the day, you'd have to have a full- on different account for it. Structurally, we've made the biggest movements by having it be easy for people to include it into their portfolios. So if I was a FinTech and I want people to do something, again, first line of defense is make it easy, because then you could just have it part of a list. Betterment and Wealthfront doing great with crypto right now. They're making it easy for people to have a very small percentage of their portfolio, and before it was very difficult to do that in any of these platforms. I would also go with ESGs, a fair amount of norms. I'm in the bay. Everyone's very climate and sustainable focused. That norm now is part of my existence versus, potentially, if I'm in a different region in the US, this is crazy that we would be moving money back and forth in order to make less, but have a high impact. By the way, ESG is not necessarily always making less, to be clear, but that is the brand perception. So I think norms are more contagious. By the way, how solar panels were adopted, you'd imagine a marketing campaign could be across the US for solar panels. There is some nice research that shows if you go actually to a very small neighborhood and get a couple people to put solar panels on it, it's contagious. This is the behavioral contagion and that people see solar panels and then they're more likely to get them. So maybe same for ESG is going region by region, getting more people to do it versus a spray and pray model across the US.

Jason Felger: Kristen, but before we wrap up, how did you intersect these two worlds? How did you start with this journey of bringing these perspectives into consumer applications? We're talking about FinTech a lot, but you referenced a lot of parallels to other industries that I think are extremely interesting for us to all learn about. If you don't mind going back a little bit, how did you start down this path? What's been the journey to get here?

Kristen Berman: Yeah, I actually started my career at Intuit. Intuit is a really lovely company, really focused on financial health and wellbeing, and I was a product manager at Quicken before inaudible and then a product manager on QuickBooks Online. So I had a really strong interest in the financial health and wealth of individuals and also small businesses. And then around 2007, 2008, I met Dan Ariely, who is the behavioral economist. He's one that makes it really accessible to the masses. He wrote Predictably Irrational around then, and met him and basically was like, " Wow, this is crazy. This is really, really insightful." I was leading some customer development at QuickBooks Online, and I built a feature about how to improve first use, and it just wasn't really working. I heard him give a lecture and I was like, " Ugh, there's a science. I hear him talking to 10 customers and then making big product investments. Why aren't I understanding loss aversion and path of least resistance and social norms in order to figure out what features to build?" Ended up working with him basically on the side for three years, just learning. I still had my W2 job, Intuit, and then went to a startup. And then Google hired Dan to start their behavioral science group, and Dan brought me on as the first person to start it with them. So really got the reps as a behavioral scientist internal to Google building their behavioral science group. I would say I got very lucky in meeting Dan and being at the right place, right time to start in this field. And then the final punchline here is after Google, we started Common Cents Lab. Common Cents Lab is at Duke University lab. It was funded by MetLife Foundation and now BlackRock Philanthropy, but it allowed us to go into all these FinTechs. So we worked with Propel and Digit and EarnUp, dozens of others, and banks, like Self- Help Credit Union, which is a really nice credit union, and so got basically exposure to FinTech at an internal level. We worked with Chime. Varo came to a couple of our workshops. Understanding the science and the application of it within FinTech was really illuminating.

Jason Felger: So cool. Thank you so much for taking the time to chat with us about your experiences and perspectives.

Speaker 1: Those anecdotes are so great. It's really helped. I mean, certainly, as we look at a tremendous number of products, but just also in our own lives as we use financial products. It's so funny to think back on all the times that I've been hit with that kind of messaging and made exactly the choice you said. We are predictably irrational.

Voiceover: You've reached the end of another episode of The Jump Off Point. Like what you heard? Head to wherever you heard this podcast, subscribe, rate, and leave us a review. We'd appreciate it. Today's show is produced by Jump Capital and mastered by Fabian Rodriguez. Until next time.


Kristen Berman, CEO and Founder of Irrational Labs, stops by The Jump Off Point podcast to discuss Fintech, empowering healthy financial habits, and the role of incentives in meeting consumers' own financial goals. Kristen has a background as a behavioral scientist, and talks about lessons learned and real world examples exploring how people approach changing mindsets around finances.

Today's Host

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Jason Felger

|Partner, Head of Platform

Today's Guests

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Kristen Berman

|Behavioral Scientist, CEO and Co-founder of Irrational Labs
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Yelena Shkolnik

|Partner, Jump Capital