65. Can Behavioral Economics Increase Savings?

I’m so excited to finally talk to you about my study on behavioral economics and increasing savings rates. In my master’s program, I was required to do my own study and submit it to at least one location for publication. I already had a relationship with the Filene Research Institute, so I decided to reach out to them before choosing the focus of my project. Their top choices were helping people save money and increase loyalty. A group of researchers from Duke University did an experiment in Kenya to try and find ways to increase savings. After six months, the surprising results were that a using a gold coin to mark off weeks of savings outranked sentimental reminders and matching funds. I loved these findings and wanted to see if this could be replicated if modified for the US. My white paper is now published, and I finally get to talk about the study and share it with you. I was privileged to have a conversation with Dan Ariely which helped me narrow down my three main concepts for the study which are time discounting, reciprocity, and a physical manifestation of savings. I hope you enjoy the results. Before I begin, I also want to remind you that the Brainy Pricing Course is now live. This 10-module course will walk you through mindset, priming (and finding your scent of the cookies), framing, anchoring, and relativity for pricing as well as knowing your numbers, notes on discounts and how to raise prices. Brainy Courses are a little different because they include a workshop component. Here’s all of the info along with money saving discount codes. Pricing Course Workshop Bundle Save $100 with code BRAINY100OFF Pricing Course Only Save $50 with code BRAINY50OFF

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Show Notes:

[06:19] Publication wasn’t a requirement for graduation, the study just needed to be submitted.
[07:27] The study done in Kenya on savings behavior stuck with me.
[08:17] The gold coin was the condition that did the best. It even did better on its own than when paired with matching funds.
[08:32] Finding a way to encourage saving without matching funds is like the holy grail.
[09:05] I was interested to see how this would translate in the United States.
[09:20] Problem number one was replicating the gold coin in the US.
[09:53] The coin was a constant reminder to save. This needed to be replicated at least in premise.
[11:17] The three main concepts I wanted to focus on were time discounting, reciprocity, and a physical manifestation of saving.
[12:02] We started with 240 members, who were narrowed down based on a few factors, including age, income, and time with the credit union.
[12:36] Filene requested we look at loyalty scores as well.
[12:48] One item we used to narrow down the list was if they had completed a Net Promoter Score survey in the six months or so before the study began.
[13:41] The 240 members were randomly assigned to one of three groups. The control group received no communication at all.
[15:05] We tracked savings until the Monday before Black Friday so we wouldn’t end up with totally skewed numbers when people went shopping after Thanksgiving.
[15:29] I also had the previous year’s data for comparison.
[16:31] It was decided to not have the members precommit to wanting to save or sign up for a program.
[17:50] Two of the groups groups received communication from the credit union talking about the importance of saving and this new information they found on helping people to save. (The other group was control.)
[18:29] About a week before the planned study, the two non control groups received a letter with very similar text. One group also received a refrigerator magnet.
[21:23] The magnet group’s letter also had an image of the magnet in the corner. All envelopes were the same.
[21:44] After 12 weeks, the 160 individuals all received an email reminding them of the importance of saving, and letting them know it was never too late to start or pick up where they left off.
[21:52] And after the 24 weeks were over, they received an email thanking them for participating, encouraging continued saving, and everyone – all 240 members – received an email with an NPS survey to see if the loyalty numbers were different after 24 weeks.
[22:55] Making the future self more tangible today is important in combating time discounting.
[24:15] Even though I was only using three main concepts, these others still had to be considered and incorporated for the best chances of adoption.
[24:53] The hypotheses of the study were that the magnet group would save more than either of the other two groups and that the magnet group would have a higher increase in loyalty score than the other two groups.
[26:14] Physical representation is the magnet itself, which was specifically designed to be a reminder of money and savings. The letter only group was encouraged to make their own note and place it somewhere to be a reminder of savings and goals.
[26:37] Time discounting is represented in the verbiage on the magnet, “I care about my future self” and that same verbiage was included in the letters and emails for both groups.
[26:50] Reciprocity was in both the “gift” of the magnet, which was called out specifically in the language on the letter for that group, and the less physical gift of tips to save money and have a happier, more financially secure life.
[28:22] The hypotheses were that the magnet group would save more and have a bigger change in their loyalty scores over the 24 weeks. And they did!
[29:16] The control group savings went up 1.42%. The letter only group went up by 1.35%. The magnet group went up by 4.51%.
[30:07] The most significant jump in loyalty score was by the magnet group. They went up to 9.2.
[30:49] The main thing to learn from this study is that the magnet group went up in both categories, and while we cannot say with 100% certainty it is because of the nudges, there aren’t any other explanations that readily explain what else might have happened.

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65. Can Behavioral Economics Increase Savings?

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