Changing Lenses: Diversify Your Perspectives

Ep211: Combatting Poverty with Neuroscience, not Financial Literacy, with Emily Heath

September 07, 2021 Season 2 Episode 21
Changing Lenses: Diversify Your Perspectives
Ep211: Combatting Poverty with Neuroscience, not Financial Literacy, with Emily Heath
Show Notes Transcript

If we see poverty as the result of financial illiteracy, irresponsibility or a lack of self-control, then the blame falls on the person living in poverty, and the answer is to find a job, spend less, and get financial training.

Financial literacy education is definitely important, and these programs have their benefits. But knowledge alone does not develop capability and behaviour change, any more than knowing you should exercise leads to going to the gym.

So why do the majority of financial interventions fail? To understand that, we’re Changing Lenses to see through the eyes of people experiencing financial vulnerability. Dr. Emily Heath, a senior researcher and behavioural neuroscientist, explains the cognitive biases and psychology behind financial decision-making. As we learn about the barriers to healthy financial behaviour, we also learn how racism, discrimination and other forms of oppression exacerbate the problem.

In this episode, you’ll learn:

  • The cognitive biases that derail our best intentions for saving money
  • Why low-income kids do worse in the “marshmallow test”
  • How poverty is a tax on decision-making
  • The effect of traumatic events like racism and domestic violence on financial capability
  • What neuroscience tells us will actually help people facing financial vulnerability

[Please pardon the poor audio quality due to internet recording.]

Full transcript available here.

Contact Rosie and find JEDI resources at:


Dr. Emily Heath is a senior researcher, consultant and behaviour change specialist with a PhD in behavioural neuroscience from the University of Sydney’s Brain and Mind Centre. Emily has been the architect of award-winning financial capability programs, which she has developed for both youth and adults. She is the author of the international report, “How do we really build financial capability? 10 Principles for financial interventions”. 

Emily is currently a Senior Manager, Climate Change and Sustainability Services with EY Australia, and sits on the Australian Securities and Investment Commission (ASIC) Schools and Money Working Group.

You can find Emily on LinkedIn.

References and resources in this episode:

Article on Professor Sendhil Mullainathan’s research:

Please note: the transcripts attempt to stay true to the essence of each conversation, while maintaining clarity and readability. As a result, certain "filler" words, and nuances of tone, emotion and emphasis will be missing.

If you're able, you're strongly encouraged to listen to the audio podcast. Transcripts are generated using a combination of speech recognition software and human editors, and may contain errors.

Ep21: Combatting Poverty with Neuroscience, not Financial Literacy, with Emily Heath


Rosie: Friends, do any of these sound familiar?

“A penny saved is a penny earned.”

“A dollar today is worth more than a dollar tomorrow.”

“Cash is king.”

You’ve probably heard these or similar sayings which is the traditional North American wisdom for your financial security.

I still remember when I was in university, and one of my friends told me their family had nothing saved for their school fees until their last year of high school. It wasn’t that they thought they weren’t going to graduate. They just hadn’t considered the financial implications ahead of time.

So when financial literacy organizations and even school boards began ramping up their public training programs, I was in full support. Because I thought the people who didn’t manage money well, just didn’t know how. And like GI Joe says – “knowing is half the battle”.

Well it turns out, knowing is only about 0.1% of the battle. As Dr. Emily Heath explains:

Emily: There's all these different things that are happening inside of our brain at a subconscious level that are making the decision of "just save more", a lot harder than it sounds. People's financial knowledge accounted for just 0.1% of the variance in their financial behavior. So trying to change people's financial behavior just by changing their knowledge levels; it's like you're in a car trying to change the direction it's going just by leaning in your seat. You might have some small impact on the outcome, but the reality is you're not doing the most effective stuff to create a change. 

Rosie: Dr. Emily is a senior researcher and behaviour change specialist with a PhD in behavioural neuroscience. She has spent years studying how our emotions, attitudes, family history, and social environment affect our ability to make sound financial decisions. And she’s taken that knowledge to help employers, counsellors and even financial institutions design programs that actually help the people who need it most.

Now, if you’re listening to this hoping to learn how to get rich quick or retire at age 30 – sorry, that’s not the kind of financial capability we’re building here.

Instead, we’re changing our lens to see through the eyes of people experiencing financial vulnerability. We’ll learn about the biases we all have that derail good financial intentions, and how we can use those very biases to drive behaviour change and break systemic barriers.

But first – a quick intro and land acknowledgment.


[intro music plays]

Rosie: Welcome to Changing Lenses. You’re invited to step into the lives of people on the front lines of discrimination, racism, and exclusion; to see the world through their eyes; and to hear their personal story of their fight for social justice.

I’m your host, Rosie Yeung, a Chinese-Canadian, immigrant, cis-straight female with invisible disabilities, and I’m passionate about justice, equity, diversity and inclusion.

Do you also want to see social change happen? Then please join me in Changing Lenses.

Each episode is hosted on colonized land that was taken from many Indigenous nations, including the Anishinaabe, the Huron-Wendat, and the Haudenosaunee Confederacy. I seek Truth and Reconciliation with First Nations, Inuit and Métis people of Turtle Island, and I call upon us all to decolonize our thinking, not just our systems. Learn more on my website,

Now please, enjoy the episode.

[intro music ends]


Rosie: Hi Emily. Welcome to the Changing Lenses Podcast. Thank you so much for being a guest here today.

Emily: Well, thank you so much for having me. I'm very excited.

Rosie: Oh, we are loving and anticipating everything that you're going to talk to us about financial capability. And I have to say I was just blown away by all you've spoken about around neurodiversity and the way our brains and psychology works with money. So before we really get into it, we are going to be talking about financial capability around vulnerable communities and marginalized communities.

So these things might be a little bit sensitive and I'm conscious of, you know, how our listeners are hearing it and how you are also feeling. And I do want you to feel as safe and comfortable as possible so that you can be honest and real and vulnerable in our conversations. So I want to commit to you and to our listeners that this is a safe space. And I invite you to keep me accountable, to being respectful and non-judgemental, and please let me know if I say or pronounce anything incorrectly. 

Emily: Will do thank you so much. 

Rosie: Awesome. Alright. So Emily, we've got a lot to go through, so I want to get right into it so we can cover as much ground as possible. And I've already spoken about how I find your experience and your background really fascinating, especially because I am a CPA, CA; so a Chartered Accountant here in Canada. And you, if people couldn't tell from your lovely voice. I don't even want to say accent, just your voice. You hail from Australia. And I'm a big believer in financial literacy. And so are you, but financial literacy, I'm now wondering if that's a Canadian term because you've been using financial capability.

So maybe you could describe financial capability for us as a way of introducing us to the topic. I should also let our listeners know that you come to us with a great deal of subject expertise, and you actually work for one of the accounting firms, but you're not representing the accounting firm as a guest today. You're speaking as yourself.

Emily: Yeah, thank you. So I work at EY. I'm actually not an accountant myself. I work on a small team called the community impact team that designs and builds social impact programs in the community. But I do have to say as I think a lot of people do when you work for the very big firms; what I'm going to say today is my opinions, and don't necessarily represent the views or opinions EY more broadly. 

But to jump into your question about the difference between financial literacy versus financial capability, it can be a little bit hard to disentangle those two concepts because in many circles, including in Australia, the terms are often used quite interchangeably by different people like policy makers or people running education programs.

And this is also complicated by the fact that different groups have slightly different definitions for each of the terms. So different academic groups, different researchers use the term slightly differently. But I think the way to think about the difference between financial literacy and financial capability is that financial literacy was actually the original term that people started to use when they talk about how we equip people with what they need to make good financial decisions.

And it was the dominant term as of the early 2000's. And really it was focused around the idea of knowledge. So this idea of all the things that we need to know to make the decisions in our best financial interests. And in fact, the way we measure financial literacy and if you look a lot of the questions that is still used in the field today to measure financial literacy, they're knowledge questions. They're looking at the ability for people to understand concepts like compound interest or inflation and they do have some correlation with people's financial outcomes. But the reason people start to use the word financial capability a little bit more is that research is increasingly demonstrating that when it comes to financial decision-making, knowledge is just the tip of the iceberg. And in fact, in most cases, knowledge isn't the primary driver of the decisions that we're making.

In fact, there was one really interesting matter analysis that looked at financial literacy, financial capability interventions, and found that people's financial knowledge accounted for just 0.1% of the variance in their financial behavior. So trying to change people's financial behavior just by changing their knowledge levels; it's like you're in a car trying to change the direction it's going just by leaning in your seat. You might have some small impact on the outcome, but the reality is you're not doing the most effective stuff to create a change. So when we use the term financial capability, we mean more than just knowledge.

We talk about the skills, the attitudes, the behaviors, the mindsets, the beliefs that enable people to make sound financial decisions that are in their interests. 

To talk a little bit more about my experience, I work in a team that designs and delivers behavior change programs.

And we work to create positive social impact in the community. And a really big focus of what we do and we've worked all around the world with different organizations is designing and delivering financial capability programs. And they take many different forms, but the aim is to use an understanding of behavioral science, the evidence for what works in the field, to create programs that are truly effective, that aren't just spending time, spending effort, spending money, but not really generating positive outcomes.

Rosie: Okay. I'm full of questions that's going to dig into what some of the psychology behind that would be. And I really like your analogy of the car. It did make me laugh because I'm picturing how futile that idea is. That 1% would be like if you see little children in the backseat of a car and they have the toy steering wheel and they're going crazy, you know, turning the thing left and right. And it doesn't actually do anything as the parents know, but the child thinks that change is happening. 

And when you said that, I'm like, yeah, it's almost as silly. And yet that is what we have thought for a long time. And I'm sure there is something there, like, education is part of the core of not just for financial capability or financial literacy, but it's the core of how we hope to improve society, right? It's the core of what our values and our beliefs are. But I think what I hear you're saying is there is so much more than that, that probably hasn't been explored very much. So what would be; I guess when I think about that, I know from some of the work you've already shared with me, that biases are part of that.

And I know from my justice, equity and diversity and inclusion work, that there are some biases that we've already encountered around, mainly biases that we're not aware of, right. So called unconscious biases. But there's a whole other range of biases that show up in financial capability. Could you maybe talk about some of the most common or perhaps the most impactful biases that relate to especially workplaces and businesses thinking about financial capability.

Emily: Yeah, absolutely. And I think it's a really big question because there are a huge number of biases that affect a lot of the financial decisions that we make. And they come from a lot of different places. So I like to sort of categorize the common areas that we make when it comes to financial decisions into three categories.

We've got cognitive biases. So errors in thinking, I think of those kind of like bugs in the software of our brain. Their mistakes that we're programmed to make. And they often mean that the way we value money, isn't necessarily the most rational, in a traditionally economic way. The second type of biases is what I call errors in thinking.

So affective biases or the way that our emotions affect our decision-making. And the third, I probably wouldn't characterize it quite as a bias, but another source of mistakes or errors is errors in execution. So the sort of mistakes that come from failures of self-control. And all three of those can drive really big impacts in our financial decision making.

So when it comes to the cognitive biases, for example. One of the biases that really affects our financial decision-making and can affect our ability to save is something called loss aversion. And that is where we tend to value what we have more than what we don't have. And that means that we tend to feel the pain of loss roughly twice as much as feeling the joy of gain. And that can have a whole bunch of impacts in what we value and how much monetary value we place on things. 

But one of the really interesting implications of that is for a lot of us, when we tell people to save, we feel the loss of that disposable income, more than we feel the gain of the money going up in our bank accounts. And so we sort of have this mental patterning that's stopping us from recognizing or feeling the value of making those long-term decisions. And there are a number of other biases that could apply to that as well. Like present bias, where we tend to discount the future in favor of the right now. And so it can become a really difficult for us to make decisions that prioritize long term financial gain, cause they require short term financial sacrifice. 

Rosie: So as you're talking about biases, Emily, I think something that comes to mind for me and going back to your analogy of the car as well is; it's the difference between head knowledge and actually doing something about your head knowledge, right? Like, so you could teach people or tell people why it's good to wear a seatbelt and we should all be wearing seatbelts, but that doesn't mean people are going to be wearing seatbelts.

And I don't even want to get into vaccines and COVID at this point, but it's that same idea that you can educate, but that doesn't necessarily translate to behavior and that these biases are part of that. Like maybe if you could elaborate a bit on what you just shared around that loss of savings because part of financial literacy training I know is always hammering home. Well, the value of a dollar today is worth more than a dollar tomorrow. So definitely put money away and stuff like that. So how does in that one example about teaching people to save money, how do these different neuro-diversity and biases play out that we could kind of learn from why just telling people saving money is good, doesn't actually work.

Emily: Yeah, it's a great question. I think savings is a really good one because there's a number of different things that are at play. So there is those biases that I talked about already. The cognitive biases that make us discount the future. There are also failures in self-control. So we can start with all the best intentions and you know, put away money and not impulse buy and all of that sort of stuff. But if we don't have the ability to regulate our impulses, which we all fail at at different times. It also stops us from getting there. And then there's the emotional side of things, right? The fact that, you know, feeling de-motivated towards our goal or, really interestingly, if we're feeling sad, it tends to increase our willingness to pay for things. And the studies are showing things like that. 

So our emotions can also affect our decision-making. So there's all these different things that are happening inside of our brain at a subconscious level that are making the decision of "just save more", a lot harder than it sounds. And so I think what we need to do when we're giving people advice about saving is we need to build our interventions in ways that understand those different drivers of our behavior and take them into account and sometimes harness them more effectively. So there's a really great study and I encourage listeners to maybe check it out themselves, where it was called "Save more retire tomorrow".

And it was basically looking at how do we overcome some of these propensities to help us make better decisions in the long term for ourselves. And particularly how do we get people to increase their savings rate so that they can retire with more. The researchers there looked at, well what if when every time someone got a raise, their employees automatically set up a percentage of that raise to go into a savings account so that way it doesn't trigger loss aversion because you never actually experienced having high disposable income and it going down. You're only taking money out to save, when you've got a little bit more to save. It also doesn't require any self control because it's happening automatically. And you're asking people to make that decision a little bit in advance so that they're not trying to deal with the, I want money right now versus I want money in the future. Both of the decisions were pushed into the future for people. And that simple structure increased savings rates by something like 25%, for people who are in the program.

And so I think just telling people, this is the right thing to do, ignores the reality of both, how we make decisions, but also the, the environment that we're making those decisions in in the way that we're really geared not to make those decisions. Designing your programs in a way that take into account, all those different factors and influences can drive really effective outcomes for people. 

It doesn't need to be as complex as like a really big savings program. There's been a really fascinating piece of research that showed, for example, we talked about present discounting and our tendency to sort of devalue the future in terms of right now. But if you show people digitally eight versions of themselves. So if you make the future more salient, that also leads them to make more effective long-term decisions as well.

Rosie: So Emily, thank you for that really detailed explanation. And I think that as you keep speaking about this, I keep going through examples in my head of, oh yeah, I think this is how this plays out or that plays out. So I'll probably keep asking you for examples or like, is this an example of something? But something I probably should have clarified for our listeners right from the beginning is that when we're talking about financial literacy, we're not talking about financial advisors trying to make wealthy people, even more wealthy. We're talking about people who don't come with that education or get supported in that way. They don't have financial advisors. So people probably on the lower income scale or very low income, people who are experiencing vulnerability.

And I see the intersection of people who are marginalized by racism, who are marginalized by their genders. And then add on top of that, financial vulnerability that they experience. And I'm going to ask a blunt question here that I think ties to biases in how we try to educate, I guess, or help people get out of financial instability. But also I think the biases against people who are financially vulnerable. 

So a trigger for me kind of was when you mentioned the bias about self-control. That people experience like a loss of self control and that could be tied to very many things. You talked about how people feel better spending money when they're not feeling so good about themselves, right? So I do think that there are stereotypes, negative stereotypes like, why would I give money to this homeless person? I see them smoking a cigarette. They shouldn't be spending money on cigarettes.

Or well, they're just going to waste money on alcohol. Or why couldn't they just get a job? Why couldn't they be more disciplined around their money? And so maybe you could actually just break down that concept of the self control piece a bit, because I'm quite sure it doesn't mean what it sounds like on the face of it.

But I do think that's a stereotype that I want to demystify of, well people who aren't financially capable in the way that we're discussing it, that it's their own fault and they could have done something differently.  How do we bust that myth?

Emily: Yeah, and it's a really important myth to bust actually. I think there's like several layers to what you asked. So to start with the self-control, I just a hundred percent agree. What we know from the research is that self-control is really strongly correlated with good financial outcomes.

So off the top of my head, I'm not sure if I'm going to get this stat quite right, but it's something like individuals who report having low self-control, those individuals have 20% less wealth than those who say they have high self-control.

So we know that there are a series of decisions that you're more equipped to make if you're able to exert more self-control. But we also know that people don't come to the self-control equally. And there's a whole lot of different reasons for that. 

The first one is and what I think is really interesting. I think a lot of us have heard of the Stanford marshmallow experiment where you get little kids. You put them in a room with a marshmallow and say, if you don't eat this marshmallow now, you'll get two marshmallows later. One of the really interesting things is people have come back and tried to replicate  that study in self-control which again, found that the kids that could exert self-control had better outcomes later in life, was that children from less wealthy households were way more likely to take the marshmallow.

But actually when you look at the way that that plays out, if you come from a poorer household where you have less stability and less certainty over the future. It actually is a really good idea to take what you can get right now, because the future is less certain. Whereas if you come from a wealthier household, you know that there are going to be two marshmallows later, so it makes sense to delay gratification and take the two marshmallows.

So there are even things like, sort of survival mechanisms that change the way that we're patterned to behave around, now versus the future, from when we're really young, that is influenced partially by our socio-economic background. So that's one thing. 

The other thing that I think is really important with self-control is, we don't all have unlimited self-control. And I like to think of self-control as sort of this pool that we all can draw on. The research shows that the more you exert your self-control, the less there is left in that pool for you to continue to exert over time. So as we're making difficult decisions and things like that, our pool goes down and down and down. And the research also shows that there's a whole number of things that drain that pool that make us less able to exert self-control and a really big one of those is stress.

So when we have people who are in a stressful environment, experiencing racism or aggression or systemic disadvantage. That is draining our pool of self control and is making us less able to suppress the impulses that are telling us to go for instant gratification. So I think it's often a really unfair burden to say to people, hey, just exert more self control. Because some of us are more able to do that than others. Not through anything that's better about us, but it's about the circumstances we find ourselves in. So that was going be my first part of the answer to your question.

The second part is around some of these assumptions that we have. I think on the whole, a really harmful assumption that we make is that people are solely responsible for their financial outcomes and are all equally positioned to make good financial decisions or financial decisions that are in their long-term interests.

And actually one of the really interesting pieces of research that's being done right now is looking at the ways that stress changes our decision making and financial decision-making. There's a fantastic researcher called Sendhil Mullainathan who has been doing a lot of research in this space. And what he's found is that stress or financial stress in particular, significantly decreases cognitive performance and reasoning.

And he can give people sort of scenarios, like how would you deal with a really unexpected expense to come up. And for whom that question generates financial stress, when they take a test of cognitive reasoning, their IQ drops or their performance drops on a test, the equivalent of a drop of 14 IQ points. Which is enough to take someone from average IQ to borderline deficient and has a bigger impact than going 24 hours without sleep.

Rosie: Whoa.

Emily: Just asking the question, not actually even inducing the financial stress. Just asking a question that creates the feeling of financial stress. If you ask that same question to people who are more wealthy for whom that doesn't create financial stress. There's no impact on their performance.

And he and his team have replicated this in the field, in India, farmers who have harvest with sort of seasonal money coming in and before the harvest. So when they're in the most levels of financial stress. The same drop in cognitive performance is observed than after the harvest, when it's a more plentiful environment.

So he actually calls poverty a tax on our decision making. And so the more financial stress that we're under, or the more stress that we're under, the less likely we are to be able to make good decisions or decisions that are in our best interests. Or to take on information or to understand information. 

The final point I'll make, is there's now research that's looking at the effects of stress on financial decision-making and shows that not only does stress in early development change the way we make decisions.

But actually, and this is in mice models. I should caveat that. So it's not necessarily like all humans, but that also creates epigenetic changes that can get passed on to children. And what they've been able to show in the lab is that stress in childhood, even if those mice or rats never meet their parents. Those children still show differences in decision-making that are brought on by the stress of the parents. So now we start to talk about things like, you know, intergenerational trauma and things like that as systemic discrimination. And to an extent, even our genes have changed in the way we make our decisions.

So the experience of that stress and that vulnerability. Wherever it's coming from. It can be social vulnerability. It could be from a personal situation, you could be ill, you could have a death in the family, whatever the case might be.

All of those things create an environment of stress where you're less likely to be able to exert self control because of that influence on the pool of self-control we have, but also less likely to cognitively reason or perform on cognitive tasks. So we know that the financial environment is an incredibly complex one. 

So all of this means that it's a really harmful assumption to say, actually, when it comes to our financial capability, we're all coming to the table equal. And we're all coming to the table with the same resources, able to be marshaled, to make good financial decisions. So I think that's a really important thing.

And when you talk about sort of the vulnerable groups, so those experiencing vulnerability, it's something that I think is so important to understand. So exactly, as you said, you know, the idea of, oh, it's just lazy or you just need to stop shopping. It's a little bit simplistic in terms of the reality of the environment.

Rosie: It's a lot simplistic actually. Like from everything that you just shared which was so rich. Thank you. What I want to sort of highlight for me right now as a takeaway is that everything you just said describes privilege, right?

Like to not have a family situation where when you were young, you had to always worry about if I don't eat this marshmallow today, I might not get it two seconds from now, or I can't trust the person who's telling me that I will still get this marshmallow. These are the kinds of things that are not captured in that original study, which I don't remember, but from what I recall, watching YouTube videos about it, I don't think there were very many racialized children in it either.

And I don't know what their income levels were but, the study clearly wasn't exploring that in the way that you have. So what a great distinction that even that study wasn't capturing things, or maybe wasn't controlling for things or wasn't as fully complicated as our world is actually complicated. Which is maybe how we end up with these overly simplistic ideas like, well, they just need to control their spending or learn this stuff and they'll be able to do it. Oh my goodness. 

 Something you said really struck me around somebody calling it a tax on poor people. So poor people who are already poor, like they don't have enough money, then get additionally taxed, not financially exactly, but the implications or the consequences are financial because they are under that stress. And under that stress, even if we were to give them all the financial literacy training in the world, they wouldn't necessarily be able to make the most financially sound decisions. So I just want to highlight that point for our listeners, cause that really was like an additional burden. And again, part of, if you have privilege that you're not poor, you're not low income, you're not experiencing that stress. You will never appreciate that environment, right. That people are trying to make decisions in.

I'm wondering if there's sort of a concrete example you have of people who have lived in at that kind of a stressful environment. Because I could also picture people who are not low income, but they'd be like, I experience stress all the time. Like I don't make bad financial decisions. So sort of what's that distinction? Like, what's an example perhaps you could share or a story that demonstrates how having that kind of stress causes people to then make bad financial decisions.

Emily: Yeah, I have two examples that maybe could illustrate that a little bit more. They actually both come from some work that we were doing with looking at women's economic wellbeing. We were really fortunate in this piece of work to be able to talk to a number of different people who either were themselves survivors of domestic and family violence, or who work with survivors of domestic and family violence. And we know that in a lot of those cases, violence goes hand in hand with financial abuse. Which often means that women who are leaving violent situations also leave with very, very little financial security.

And so what one of the things that we were trying to look at was how do we support and build things that actually help these women. And one of the things that I thought was really interesting talking to someone who had experienced really, really terrible financial abuse was we were asking her sort of, you know, if you would get sort of guidance and information, what would have been valuable to you at the time when you were in the most trouble?

And what she said to us was, actually if the information you gave me couldn't fit on a piece of A5 paper, I wouldn't have taken it in. The amount that I was able to comprehend, understand, and deal with at any time, it had to fit on a piece of A5 paper. And she was like, I wouldn't even pick up, even if it was A4 piece of paper, I wouldn't have picked it up. I wouldn't have looked at it. I just couldn't and handle it. And so I think that's just to me, a really real world playout of the way that financial stress or broader stress completely changes our ability to deal with information and make decisions. 

Rosie: So, Emily, sorry, let me just interrupt you briefly for a second. Is A5 bigger or smaller than an A4 piece of paper?

Emily: A5 is half the size of an A4 piece of paper.

Rosie: Okay. Great. So for our North American audiences, A4 is roughly like it's a little bit bigger than letter size, which is 8.5" x 11". So if A5 is half of A4, then you can imagine like half of a letter sized piece of paper, basically.

Okay. Thanks. Sorry to interrupt. Please go on.

Emily:  So the second example came from that same project where we were talking to a financial counselor who worked with a number of women in those situations. And they were saying, you know, sometimes success for the day with my clients is getting them to open their mail. Because people's bills build up so much, and there's so much stress and so much anxiety around what's going to be inside the envelope. But the thing I tell them to do is just bring your letters in. We'll just open the mail together.

And that feels like such a small thing. But for that person that's huge. And so I think those are really good examples because again, it's so tempting to say, well, you know, if you're in a really difficult financial situation, go talk to a bunch of people. Figure out what your rights are. Go apply for financial aid at your bank or with the government. And when people say, well, actually I can't even open my mail or I can't take in more than what's on this tiny piece of paper. It's not as simple.

Rosie:  Yup. Yeah. For a hundred percent. I actually want to turn a bit and talk about organizations and people who I give them the benefit of the doubt. I think very unintentionally and sometimes intentionally, because they see it as marketing. But they may not recognize how some marketing tactics or common business practices actually are really hurtful or inadvertently targeting financially vulnerable people through these different biases and psychologies. And I'm sure you will be able to name them and, and clarify them much better than I can. But I I'll describe some situations to you, which I feel like I know that there's some kind of psychology thing at work there. I don't know quite what it is, but I feel like it is unfair, right. 

So for example, subscriptions. People who are not under financial stress or in financial vulnerability, I already know have trouble managing subscriptions because you subscribe to something once. And it's so easy to just set it and forget it. And then the charge starts showing up on your monthly bill and you may or may not notice it. Again. I think that has been historically attributed to illiteracy or competency or lack thereof. And it's like, well, you better pay attention to your credit card bill then. And if you just did that, you would know if you were still subscribed or not. But I think there's a real danger there. And especially because so many things are moving to subscription model, that it's just going to affect people and they just don't recognize it.

Emily: Yeah. It's a great example because I think it's at the least it's playing on sort of two really key things. The first is that when it comes to invisible money, the more invisible our spending is the easier it is for us to spend. 

And so scientists have done really amazing experiments now, where they can put people into an MRI machine and look at the way that they make their decisions when it comes to money. And scientists can actually look at the different levels that each of those areas of the brain are activated and predict based on how much pleasure you're feeling and how much pain you're feeling. Are you going to say yes to the purchase. So we refer to this idea as sort of the pain of pain. It turns out that when you make spending invisible, the pain of pain goes down because you basically see yourself give away less.

And when it comes to subscriptions, the spending is even more invisible. Because you're not even tapping anything, you're not even clicking purchase, the money is just getting automatically deducted. So it's even less likely that it's going to trigger that feeling of pain and basically the less pain we feel, the more likely we are to buy. The second thing that we know is that if you want to incentivize a certain type of behavior from a behavioral perspective. You make the behavior you want people to take as easy as possible and you make the behavior you don't want them to take as hard as possible.

And so with subscriptions, you're making that behavior as easy as possible. You're effectively removing every single barrier to people spending the money because they don't have to make any sort of decision. It's just happening by default.

And so if you think about it the choice that you're actually presenting people with when they sign up for subscription is often, Hey, get something for free for a month. Don't worry about what happens after that. And then after that, they're not making the decision again. They're never reassessing that choice until they look at their bank statement and remember, oh yeah, there's a subscription that I've got.

Rosie: So my justice and equity minded brain automatically goes to, well, it doesn't sound right. It doesn't feel right to me. It feels almost sneaky as a business practice. And I'm sure that will not sit well with people that I just said that, but I think we need to face the reality of what we're creating for ourselves, right?

As a society and as an economy that we're doing this. Like these, as you said, if we're making it as easy as possible for one side, right? To make a certain behavior or perform a certain behavior. Who is that benefitting? And in this case, the barriers are all removed for the company to receive the subscription revenue.

So for Netflix or whoever, Amazon or something, to receive this monthly money. And the person who's making the purchase in the case of a, you know, X period for free, hasn't even made a decision. They made a decision to try it for free for one month. And if they're not actively engaged in looking at that, not because they're stupid or irresponsible. I think that's human behavior, right. I think that's the other thing is like, well, but they have the choice.

Like they can stop it at any time. You can cancel it anytime. What's your opinion on this? Is it too far to go to say we're taking advantage of people based on how we know typical human behavior works.

Emily: Yeah, it's a really good question. I find it hard to answer because I don't know the motivations of the people who are designing the subscription service. I would say at the very least, they're making a series of decisions to optimize their business model. And so whether they are consciously taking advantage of people, I think that the reality is. The way that they've designed their products, their services, their signups are designed to make it as easy as possible to say yes to the financial decision. And make it harder and harder to later say no.

Rosie: Fair enough. That was obviously an unfair question to you because how on earth would you know what people are thinking or their motivations are? I could see the question coming up like Netflix or Amazon, or whoever throwing up their hands. Like, what are you saying? So what now we're not allowed to do subscription fees anymore because now we're going to be hurting poor people. Like, no, I don't think that's what we're saying, but what are your thoughts on that tap and go, which I think a lot of people do love and including me and the subscription thing, like there's good operational advantages to it. So how can we not pick one over the other, not be locked into a binary, we do it, or we don't do it, but then how can we maybe modify that or take into account and adjust and accommodate and include people in financial vulnerability?

Emily: Yeah again, really good question, because I agree with you. I love convenience. And this goes back to the sort of not wanting to attribute negative intent to people. Like making the financial world a more convenient place is fantastic. And I think if heaps of people heard, you know, actually you have to re-press a button once a month for every single one of your subscriptions that you want to keep that would feel really onerous for people as well.

So I agree with you. I don't think the answer is well to stop doing subscription services. I think it's more just creating those little friction points that allow people to reflect on their financial decisions. So for example if you've got a gym membership where you're paying money once a month to get a thing that says, "Hey, you actually haven't used this in a while. Does this still work for you?" So that's just a little prompt that gets people to reflect on their current financial arrangements and see if they're still the most effective one.

Rosie: I love that. I think that's really great. If a business actually did that, I would appreciate that and probably have more loyalty to that business because they're putting me as the customer first and not just, oh well, they don't even notice so I can make the money off of them again. Not saying every business is thinking that, but I think it just really shows a greater empathy for the individual who's putting the money out. So those are really great examples and suggestions, thanks Emily.

Thank you so much for coming and sharing all of this wealth of knowledge that you have. I really am appreciative of how much more there is to think about. For people like me, who do care about the state of the world and the fact that there are many people in deep cycles of poverty, generational cycles of poverty and not just poverty-poverty, where you're below a certain financial line, but have difficulty making sound or what you could call rational financial decisions. And yet we don't really know what to do about it. So the research you're doing and the work you're doing is so important. Thank you. Thank you. Thank you for sharing this with us publicly. And I want to leave, I guess, with a bit of a personal note for you. Cause I am deeply interested and I think our listeners would be too on how you got into this work or how you decided to specialize in this. Cause you could have taken your research, your PhD anywhere. Why this? And kind of through that, why should we all care about it? 

Emily: Oh, that's a really good question. I kind of fell into it by accident to be honest with you. When I was at uni [university], I was working part time to make a bit of extra money with a small company. And they got approached to build Australia's first sort of really large national face-to-face financial capability program. And at the time I was actually studying biochemistry and was doing a PhD and studying medicine at the same time and got a call saying, "Hey, would you like to come with us and help us build this program together?" and I was like, "Yeah, that sounds awesome. Of course I would." 

And so, went and started working and fell in love with just the science of decision-making and behavior change and then started to go, well hey, I'd love to do this more in my life. So went back and did my PhD in behavioral neuroscience because, I just fell in love with it. And then came back to the same group after I finished my studies and started to basically getting engaged to just do this research and work on these sorts of questions. 

The more I do it, the more passionate I get over time. When I first started, it was very much looking at how do people with a similar background to me, with a similar life experience to me improve their financial outcomes. How do we teach people how to save 10% of their income or think about investing and things like that.

And I was just fortunate enough that where the work took me was starting to look at much bigger questions of equity and, you know, that "Hey, telling us to save 10% might sound really easy to you. I'm living paycheck to paycheck. That's actually not great advice because I don't know how to do that."

And so the more deep I got into it, the more I realized how important it was. And how much there was an ability for us to make a difference by having empathy, by really understanding what are the true drivers of the behaviors and the outcomes that we're seeing.

Rosie: That's amazing. Your joy and your work really shines through. So we're thankful that you somehow got to this work and have loved it as much as you have. I could imagine where there will be people who have some questions for you or might want to follow up and just connect. Listeners we will have the link to Emily's LinkedIn in our show notes, or you could just search for Emily Heath. Last name is spelled H-E-A-T-H on LinkedIn, and I'm sure her name will come up. 

So yes we're so glad that you were able to join us today. I really had fun having this discussion. I hope you did too. And just thank you for sharing your knowledge and calling us to think about money and financial capability differently than we have. Really appreciate your time.

Emily: Not at all. You're very welcome. And thank you so much for having me cause it was a genuine pleasure to get to spend a bit of time talking about this stuff.


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Rosie: Thanks for joining us! I hope we helped to change your lens, and expand your worldview. And if you want to talk about today’s episode with a safe community, or ask me questions directly, please join our Changing Lenses Facebook Group – the link is in the shownotes. This episode was produced and hosted by me, with associate production by William Loo, and post-production by Cue9. Until next time, I’m Rosie Yeung, your guide to Changing Lenses.

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