How an attention-drawing survey reduced overdraft fee expenditures by 3.7%
Abstract
As banks shift from monthly fee structures to service fee structures (like ATM or overdraft fees), industry reports estimate that annual overdraft revenue has risen to 75% of explicit deposit account revenue and 6% of total net operating revenue.1 That adds up to an overdraft fee total of $30-40 billion paid annually and, roughly speaking, averages $150 per year per chequing account. Limited customer attention is often the given explanation for this recent skyrocketing of overdraft fees.
Researchers designed and monitored a nudge over four years to determine to what extent overdrafts are affected by shocks to chequing account holders’ attention. They distributed a financial literacy questionnaire— comprising overdraft-related questions—to a pool of participants. Its findings reflected a significant, immediate effect on behaviour among the participants: within a month of taking the survey, participants showed an estimated 3.7% reduction in probability of incurring overdraft fees.
Rating 4/5 (Significant results; fairly generalizable)
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How an overdraft-related survey reduced the
probability of incurring overdraft fees the following month |
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Condition
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Results
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| Pre-survey | No base data given |
| After survey completion | 3.7% decrease in probability of overdraft fees |
Key Concepts
Financial Literacy: The cognitive know-how to make sound, responsible financial decisions. Understanding overdraft fees, a costly aspect to personal finance that often goes unnoticed, is essential to maintaining financial literacy.
Limited Attention: Tour tendency to not fully consider information that would inform our choices. In the case of this intervention, limited attention could be related to information about account terms or available balances.4
Issue Salience: The extent to which an issue resonates with an individual respondent or sample member.
The Problem
Rising overdraft fees
Over the past decade, overdraft fees have become a key component of bank profits and a prominent personal finance cost. Overdraft fees rose to a record this year, up to an average of $33.58. Overdraft fees have reached a new high, even as many of the biggest U.S. banks look to reduce the contentious, albeit lucrative, revenue source.2
Could redirecting consumers’ attention decrease fees?
A key contributing factor to this rising overdraft balance is consumers’ limited attention span. Previous approaches utilize a neoclassical, full-information model to explain the consumer’s choice to pay overdraft fees—they see this decision as a combination of motives related to easing liquidity constraints and/or economizing on transaction costs. But the role of limited attention has been relatively unaccounted for in prior studies and can explain the overdraft rise in a world plagued with rising attention deficit complications.3
Two surveys: one obvious, one subtle
Researchers from the National Bureau of Economic Research formulated a study to observe the effects of limited consumer attention with regards to overdraft tendencies. They pooled a sample of panelists maintaining an active checking account to discern whether shocks to attention affect overdrafts - in both the short run and over sustained periods - and monitored their checking accounts to identify changes in overdraft activity.
They utilized two types of surveys, one labeled as ‘overdraft-focused’, the other merely ‘overdraft-measuring’. The former included explicit mentions about overdraft, asking almost exclusively about overdraft fee payment, use of overdraft protection programs, and satisfaction with overdraft fees. The latter focused on questions about household finances and subtly drew consumers’ attention to overdraft fees with a handful of questions on the topic. Over the course of four years, from August 2004 to 2008, 21 periodic surveys of one of the above types were administered, and variation in attention to overdraft fees was subsequently observed.
The EAST framework
To identify the effect of how a survey could spike attention to personal finances, researchers used the EAST Framework. This form of intervention comprises 4 primary qualities: Easy, Attractive, Social and Timely. The intervention should be implemented Easily; it must be Attractive, to stimulate attention; it must utilize our Social nature; and it should also be Timely in the manner in which it encourages attention.
The attentional survey was easy and accessible, as it only required the participant’s banking information; attractive in its method of drawing attention to overdraft fees without being prescriptive; and timely in its periodic administration of the surveys before each observed month’s end.
Results and Application
Attention impacts our overdraft spending
The study’s results suggest that limited consumer attention plays an important role in explaining rising overdraft numbers. Nearly 60% of respondents in the “overdraft-focused” surveys reported overdrafts when they thought there was not enough money in their account. Many others believed that the money they deposited was not yet available. Both reasons are consistent with the limited attention hypothesis.
The study also found evidence of limited attention with regards to terms of account use. In that same survey, 24% of checking account holders did not know/remember whether the bank described different overdraft coverage options at the time of account opening. In two other surveys, 12 and 13% of checking account holders report unawareness of whether they currently have overdraft protection on their account.
After taking any survey that mentions overdraft related topics (spending control, balance-monitoring, or other bank fees), consumers tended to be significantly less likely to pay an overdraft fee. The probability of incurring an overdraft fee went down by 3.7 percentage points on the individual level. Moreover, survey-taking demonstrated both an immediate effect and a long-run effect. The authors conclude that attention is cultivated through survey-taking and decays slowly with time.
Ongoing surveys are more helpful than one-time reminders
Application of this study could have serious benefits for consumer protection and personal banking strategy. For example, getting asked a question like “Do you have overdraft protection?” could remind someone about the opportunity to enroll in such a program. Alternatively, that or another overdraft-related question could induce the customer to monitor balances more closely, to keep a higher buffer stock of balances in the account, or to cut back on spending generally.
The results of this study suggest that ongoing reminders about account terms and fee structures might be more effective than the one-shot, upfront disclosures that banking institutions typically provide.
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Industry
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Application
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| Education | As pandemic life continues to encumber the way we interact outside of our homes, the classroom has been a particularly difficult place to stay safe. Many teachers have reported insufficient numbers of readily available masks and test kits, inadequate staffing in schools, and an overall feeling of uneasiness upon returning to in-person instruction. Encouraging students and parents to take surveys on their experience in the classroom can draw attention to policymakers on such issues in a meaningful way.5 |
| Public Policy | Promoting the provision of reminders or other shocks to attention on overdrafts, mutual funds, and other consumer financial protection on the side of banking institutions to their customers is integral to sound public policy formation related to household finance and associated domains. |
| Retail & Consumer | Conducting surveys in market research can successfully promote customer loyalty and profitability; attentional satisfaction surveys can appeal to the customers’ desire to be recognized and pampered, reinforcing positive feelings they may already have about the surveying company and encouraging a greater likelihood to buy its products. |
Ethics
- Study respected the privacy of the participants by safeguarding their anonymity in the provision of banking information
- Demographic self-reports were provided at the time of enrollment in the study, however they were not observed for every single participant because of variance in registration times
- Participants had full autonomy in their spending decisions before and after competing the survey
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Dimension
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Verdict
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Comments
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| Welfare | ||
| Does the intervention demonstrably improve the lives of those affected by it? |
Positive
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Encouraging greater attention towards personal finance has positive implications for consumers. |
| Does the intervention respect the privacy (including the privacy of identity) of those it affects? |
Positive
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Participants provided all data anonymously in exchange for payment from several market research firms. |
| Does the intervention have a plan to monitor the safety, effectiveness, and validity of the intervention? |
Positive
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The researchers conducted an observational study; patrons’ safety wasn’t threatened. |
| Autonomy | ||
| Does the intervention abide by a reasonable degree of consent? |
Positive
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Participants were aware of the study, provided their consent, and were compensated for their participation. |
| Does the intervention respect the ability of those it affects to make their own decisions? |
Positive
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Participants were entirely in control of their spending decisions. |
| Does the intervention increase the number of choices available to those it affects? |
Not Applicable
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The number of choices remained unchanged throughout the intervention. |
| Equity | ||
| Does the intervention acknowledge the perspectives, interests, and preferences of everyone it affects, including traditionally marginalized groups? |
Insufficient Information
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There is no mention of diverse participants' preferences. |
| Are the participants diverse? |
Insufficient Information
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Demographic details were not observed for every panelist. |
| Does the intervention help ensure a just, equitable distribution of welfare? |
Positive
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Financial awareness and literacy is a great skill for all—attention to overdraft fees induces wiser spending. |
Related TDL Content
Are You Making Bad Financial Decisions Because of Information Avoidance?
Being well-informed about our personal banking is critical to averting unnecessary fees, but our own attention spans can hinder us from achieving financial literacy and making optimal financial decisions. While attention is one form of information avoidance, this article explores the multitude of ways in which we set ourselves back in understanding our finances.
TDL Study: Improving Financial Decision-Making
Part of the reason we often draw our attention away from financial decision-making is due to the stress it induces. Unfortunately, a vicious cycle can be created when stress leads to poorer financial decisions which then leads to more stress. Although reducing stress itself is notoriously difficult, limiting its impact on financial decisions can help break this cycle. To address this issue, TDL designed a study to observe successful means to reduce the impact of stress on money-management.
Sources
[1] Burrhouse, Susan, Patricia Cashman, Robert Cordeiro, Timothy Critchfield, Yan Lee, Victoria Pawelski, and Katherine Samolyk. 2008. “FDIC Study of Bank Overdraft Programs.”
[2] Adamczyk, A. (2021, October 20). Overdraft fees hit another record high this year—here's how to avoid them. CNBC. https://www.cnbc.com/2021/10/20/overdraft-fees-hit-another-record-highheres-how-to-avoid-them.html
[3] Bluth, R. (2018, September 10). ADHD numbers are rising, and scientists are trying to understand why. The Washington Post. https://www.washingtonpost.com/national/health-science/adhd-numbers-are-rising-and-scientists-are-trying-to-understand-why/2018/09/07/a918d0f4-b07e-11e8-a20b-5f4f84429666_story.html
[4] Grubb, M. D. (2015). Consumer inattention and bill-shock regulation. The Review of Economic Studies, 82(1), 219-257.
[5] Hubler, S. Why coronavirus testing is falling short in many schools across the U.S. (2022, January 12). The New York Times - Breaking News, US News, World News and Videos. https://www.nytimes.com/2022/01/11/us/schools-covid-testing.html
[6] Stango, V., & Zinman, J. (2014). Limited and varying consumer attention: Evidence from shocks to the salience of bank overdraft fees. The Review of Financial Studies, 27(4), 990-1030.
