Financial regulators are increasingly using behavioural insights to educate investors to make more informed financial decisions, according to a report published Wednesday by the International Organization of Securities Commissions (IOSCO) and the Organisation for Economic Co-operation and Development’s International Network on Financial Education (OECD/INFE).
“The accelerated growth of new and innovative technologies, an excessive amount of available financial information, and increasingly sophisticated financial products make it progressively more difficult for retail investors to navigate today’s complex financial markets.” IOSCO says in a news release.
“Although many organisations offer education and financial literacy programs, investors often fail to make rational financial choices because of their own cognitive, social and psychological biases — all of which can act as barriers to sound financial decision making,” it adds.
The report reviews strategies that employ behavioural insights to help nudge investors towards better financial planning and investment decisions.
“Initial evidence suggests that behavioural insights are an important complement to traditional approaches to education, particularly as they can be scaled-up and applied to new situations that may arise,” the report states. Policymakers are increasingly utilizing these insights to enhance their work at improving financial literacy and investor education, it adds.
- The report also examines:
approaches for regulators, policymakers, and the industry to utilize these insights, such as utilizing pilot programs and field tests;
combining traditional approaches and behavioural insights;
rigourously evaluating policy outcomes; and
sharing information.
For example, it highlights the value of utilizing randomized controlled trials to examine the impact of different policy initiatives on investors’ responses to learn from, and build on, those results.