[From CGAP blog, 21 July 2015] 

When it comes to understanding the needs and behaviors of low-income people, the financial inclusion literature is full of contradictions. Experts celebrate poor people for their complex, active financial lives, but then seek to educate them financially. Researchers document how resilient and purposeful their informal practices are, but then investigate ways to protect them against their own financial habits. Giving the poor a wide range of financial choices is an admirable goal, but do we really need to “nudge” them to change behaviors, as if the choice had already been made for them?

Education is often identified as a barrier preventing customers from using digital financial products. In reality, however, teaching someone to use money in a new way - digitally - by starting with education may be the toughest path. Change only comes with practice, and people will see little reason to change without a compelling reason. It may be easier to inspire the use of digital financial services if we flip the script around.

1. Understand Current Behavior. The first step in the journey to greater use of digital financial services is to understand what it is that people do today, specifically how they make decisions on their money matters. In the paper Money Resolutions, A Sketchbook, I characterize six common financial decision-making practices that poor people often employ. These are expressed creatively in this short animated video. People living on precarious, unpredictable incomes cannot afford to live by hard- and-fast rules. Instead they must make money decisions in the moment, every time they touch money, because there is new information that gets revealed with every dollar they make and with every unforeseen expenditure. They must organize their financial life as it unfolds, not through infrequent, idealistic budgeting moments. These six practices allow them to put their financial decision-making on some kind of auto-pilot, creating anxiety-reducing habits that work for them most of the time.
   
   
2. Use New Tools in Old Ways. Once there is an understanding of people’s habits and behaviors, new digital tools can allow them to replicate these behaviors through a new medium. The key here is to enable customers to preserve their current mindset and behaviors instead of forcing them to change just to fit the digital tools. In this stage, the value of digital financial services comes from letting people do what they have always done, just with a greater sense of control, convenience, reliability, security and perhaps privacy. Two of the six practices discussed in Money Resolutions, A Sketchbook – animating money and liquidity farming – are especially well-suited for digital replication because they can be brought to life through gamification and leveraging social networks. Asking people to adopt a new tool for dealing with money, while simultaneously requiring that they learn new habits and approaches, is simply too overwhelming and is likely to result in low levels of usage.
   
   
3. Use New Tools in New Ways. Once people are comfortable replicating their old habits with new tools, they are likely to begin using these tools in new ways, although this is usually a slow process. The sheer availability of better tools can, over time, shift how people interpret their problems and the choices they consider. Just think about how you first used the Internet when it was introduced: most likely you used it to do things you otherwise have done some other way, such as conduct research or send messages to friends. It was only later that you explored the uses specific to that medium – like blogging, tweeting, or building a website. The same goes for digital financial services. At first, customers may simply use them to send money to friends or family. But with time, as they become more comfortable with digital money, more advanced opportunities, such as using digital credit or using digitally-powered pay-as-you-go utilities, become accessible.