/ Resources
Improving financial wellbeing using behavioural science

Improving financial wellbeing using behavioural science

Authored by Fernanda Mata and Kun Zhao.

The Australian economy is recovering from the COVID-19 pandemic much faster and stronger than expected. This scenario presents an opportunity for governments and businesses to develop evidence-based programs aiming to foster healthy financial behaviours and attitudes, leading to higher financial wellbeing among Australians.

Financial wellbeing is about a personal sense of financial security and feeling as if you are able to meet your living expenses. It’s also about being aware and in control of your day-to-day finances, including being able to make sound financial decisions to manage your future.

As behaviour change researchers, we apply insights from various disciplines, such as psychology, economics and social sciences, to help governments and businesses understand how they can encourage behaviour change, leading to higher financial well-being.

Equipping Australians with financial knowledge

Successful behaviour change programs should empower people (especially vulnerable groups) by equipping them with financial knowledge. It’s crucial to provide people with the knowledge to organise their personal finances, manage their debts, plan for retirement and have a savings plan.

Financial literacy influences people’s financial decisions and behaviour. For instance, there is a link between financial literacy and expectations of the stock market performance, superannuation savings, prevention of financial hardship and wealth accumulation.

As such, financial literacy is essential, but we may need an extra push to change our behaviour, leading to a higher sense of satisfaction with our financial situation.

We don’t always act for our best interests

There are a range of factors that may prevent people from using their financial knowledge to make sound financial decisions to manage their future.

One of these factors is the intention-action gap – a disagreement between what people say they plan to do (e.g. preparing for retirement) and what they actually do. This gap could result in some people having the intention to act but failing to do so, even when they understand the importance of taking action.

Failing to act on pre-established intentions is especially common among those individuals who experience high levels of stress about their financial situation.

It’s crucial for individuals who are stressed about their finances to plan concrete and small steps to achieve their long-term financial goals. Closing the intention-action gap requires setting feasible goals and committing to stay focused on your financial objectives.

Our research has shown that, the more control you have over your finances, the less anxious you will feel over the long-term.

Other common behavioural barriers in financial decision-making include procrastination, present-bias (people tending to think about the present moment rather than future consequences) and ‘optimism bias’ (people putting too much weight on the probability of positive future outcomes).

It is important to create action plans, including details about when, where and how to act if you want to overcome these barriers and increase the chances that your goals will be achieved.

Simply asking people to specify a concrete timeframe for them paying their credit card balances significantly increased their chances of acting on their intentions. This simple question also increased the likelihood that people would do that within the suggested timeframe.

If you need a little extra push to focus and act on your long-term objectives, you can use automated tools, such as recurring debt payments and regular savings transfers.

Setting up reminders can help those individuals who are not comfortable or don’t feel ready to sign up for automated tools.

Visual reminders can help people increase their savings, particularly when the reminders include details of future expenditures for which the savings funds could be used for.

One common approach used to encourage people to save is to bombard them with several reasons to save. However, this strategy may not be as effective as it seems to be.

Evidence indicates that, compared to having one savings goal in mind (e.g. deposit to purchase a home), having several savings goals (e.g. deposit to purchase a home and education for children) can be demotivating and result in failing to act and lower savings overall.

Take-home message

The COVID-19 pandemic and the resulting economic downturn has increased our financial anxiety in many ways. It may have triggered concerns about our ability to meet our financial needs and how much control we have of our day-to-day finances.

But there’s also a lot we can do to improve our financial well-being. Improving our financial knowledge and understanding what will make us act on our goals (e.g. planning concrete little steps, visual reminders) is an important first step in doing this.

Sign up to the broadcast

Get monthly behaviour change content and insights

I'm an alumnus, friend or supporter (including donors, mentors and industry partners)
I'm a Monash student
I'm interested in studying at Monash
I recently applied to study at Monash
I'm a Monash staff member
I recently participated in research activities or studies with Monash

I agree to receive marketing communications from Monash University. Monash University values the privacy of every individual's personal information and is committed to the protection of that information from unauthorised use and disclosure except where permitted by law. For information about the handling of your personal information please see Data Protection and Privacy Procedure and our Data Protection and Privacy Collection Statements.

If you have any questions about how Monash University is collecting and handling your personal information, please contact our Data Protection and Privacy Office at dataprotectionofficer@monash.edu.

Education & training

Looking to upskill?

Check out our Monash University accredited courses, along with our short and bespoke training programs.


Have a project for us?

We offer a broad range of research services to help governments, industries and NGOs find behavioural solutions.


Explore our resources

We believe in building capacity and sharing knowledge through multiple channels to our partners, collaborators and the wider community.