How goal-specific reminders increased savings by 16%
In this article, the authors propose two types of spending periods: regular consumption and lumpy expenditure. What, you ask, is a lumpy expenditure? It’s an expensive transaction typically not done too many times in a given year, such as school fees or front row seats to a basketball game. While we can assume there is minimal hyperbolic discounting with regular consumption, it’s lumpy expenditures that people are likely not saving for properly since they occur infrequently. The researchers wanted to demonstrate how reminders influence saving behavior, differing from other studies focused on strategies like nonbinding agreements or surveys. Participants in this study were working poor and middle-class clients of three banks in the Philippines, Peru, and Bolivia. Findings revealed that individuals saved 6% more when they received monthly reminders than those who did not; moreover, reminders that mentioned one’s specific savings goals raised savings rates by 16% compared to the standard reminder.
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Rating: 3/5 (Significant effects; Unstandardized methodology; Imprecise findings)
How the Implementation of Reminders Impacted Savings Rates for New Bank Account Holders
|General messages: Upon opening a bank account, individuals received monthly reminders to put money into savings||Customers increased savings by 6% (compared to control with no reminders)|
|Specific messages: Upon opening a bank account, individuals received monthly reminders specific to their individual savings goals||Customers increased savings by 16% (compared to control)|
When making an everyday purchasing decision, how often do we think about large expenditures we might face later on? The literature has shown that self-control (read: hyperbolic discounting), limited attention, and the planning fallacy all have a significant part to play in our tendency not to plan for these sizable expenses, or what the authors of this paper call “lumpy expenditures.”
Previous investigations suggest that reminders can combat these biases: savings deposit collection services, surveys, and nonbinding commitments have been shown to help consumers reach their savings goals. That’s because reminders create connections between the decisions of today and future expenditure opportunities, therefore lessening attentional failure. However, what type of reminders, how often, and how specific should they be?
The investigation took place in three banks in Bolivia, Peru, and the Philippines between 2007 and 2008. In each experiment, people opened a banking account with varying incentives, and were randomly assigned to a control group (received no savings reminders) or the treatment group (received savings reminders).
First Valley Bank, operating out of Western Mindanao, Philippines, worked with the investigative team to increase its Gihandom (Dream) Savings product enrollment. After going door-to-door in rural and small urban areas, bank marketing employees successfully recruited 2,314 participants to open an account. Sixty-six percent had cell phones and were randomly selected to receive a monthly reminder. Participants were also randomly selected to receive a “late” text message reminder, only sent if a customer didn’t make a deposit in a given month.
The government-owned Caja de Ica worked with the research team to roll out a new commitment savings product called Plan Ahorro (“Savings Plan”). Plan Ahorro was marketed across television and radio over a few months. As a consequence of low cell phone prevalence, the bank sent reminders out in letter form; participants were randomly selected whether or not to receive reminders and whether or not they were “regular” or “late” reminders.
Furthermore, the bank incorporated two additional treatments: one treatment randomly assigned participants in the reminder group to receive a letter targeted towards their individual goals. The second treatment independently and randomly assigned a gift for the clients to receive upon opening a new account. The gift was either a pen (control group), a photo of their goal, or a jigsaw puzzle of their goal (the latter two are the treatment group).
In Bolivia, researchers worked with Ecofuturo to create a text message reminder program as a part of its already popular commitment savings plan, Ecoaguinaldo. An “aguinaldo” is a Bolivia-specific year-end bonus that employers must pay employees. Consequently, Ecoaguinaldo helps employers save up throughout the year in order to pay the payout. The product was marketed on television and radio. Customers with a cell phone were randomly selected to receive text message reminders, and unlike the other two programs, nobody received late texts.
In total, the investigators recruited 14,176 individuals, the majority of which (n=9,652) were Bolivians.
Created in 2016 by The World Bank, the CRI2SP framework is a behavior-centric research framework that helps uncover behavioral barriers and trends among participants in a study. The authors of this paper used this framework to understand how to best investigate their hypotheses. The CRI2SP framework asks five questions:
- What is being communicated to the participants, and how?
- What resources do they have available to them or are supplied by investigators?
- What are the investigators incentivizing; what information is being presented?
- How does society influence participants’ actions?
- How can a psychology-focused design influence behavior?
Results and Application
Bank customers who received monthly reminders, whether by mail or text, saved 6% more than their counterparts who didn’t receive any reminders. Moreover, reminders increased the likelihood of hitting their savings goal by 3%. Given the study was conducted across three countries, two continents, and two languages, it’s impressive the authors found no significant differences across settings, however, they note that the findings were slightly imprecise.
In Peru, where some reminders were targeted toward an individual’s future lumpy expenditure, customers increased savings by 16% compared to those who received a standard, non-targeted reminder. Additionally, neither the Peru-specific control group (receiving a pen) nor the treatment group (receiving a puzzle or picture of one’s goal) significantly impacted savings. They did not significantly impact savings behavior compared to the goal-specific reminders.
|Education||Reminders could help learners in many different domains that would benefit from a few minutes a day, for example language where memorization is key and long-term goals are definable.|
|Financial Services||If someone has a goal for investing money into stocks, reminders like the ones in the study could help individuals reach their goals each month.|
|Climate & Energy||To use less energy, reminders could go out to reinforce less energy usage and keep climate-friendly goals salient.|
- Banks seemingly individualized methodology, complicating results and adding additional variables.
- Conditions were randomly assigned.
- Authors did not clearly present findings and the study was difficult to conceptualize.
- Focused on non-WEIRD (Western, Educated, Industrialized, Rich and Democratic) communities.
|Does the intervention demonstrably improve the lives of those affected by it?||
|Better long-term savings habits would benefit people from all socioeconomic backgrounds|
|Does the intervention respect the privacy (including the privacy of identity) of those it affects?||
|No private or identifying information was shared, apart from the country and name of the bank.|
|Does the intervention have a plan to monitor the safety, effectiveness, and validity of the intervention?||
|Yes, authors described many ways in which the study can be improved upon and what next steps might look like.|
|Does the intervention abide by a reasonable degree of consent?||
|It’s assumed that participants were free to close their bank account at any time, although this was never explicitly mentioned.|
|Does the intervention respect the ability of those it affects to make their own decisions?||
|Individuals’ ability to choose savings rates, deposit frequency, and open a new account was maintained throughout the study.|
|Does the intervention increase the number of choices available to those it affects?||
|It provides empirical evidence for the creation of savings reminders that clients could opt in to.|
|Does the intervention acknowledge the perspectives, interests, and preferences of everyone it affects, including traditionally marginalized groups?||
|Customers in the study include members of groups that have been traditionally left out from research.|
|Are the participants diverse?||
|The participant pool displays diversity in location, language, culture, and socioeconomic status.|
|Does the intervention help ensure a just, equitable distribution of welfare?||
|More savings help people become more financially stable.|
Related TDL Content
Written towards the beginning of the pandemic, this piece explores the planning fallacy in the context of working from home, and how our brains can (rather easily) get overloaded. It also covers the BASIC toolkit, developed by the OECD, and how itcan help us understand and improve our behavior.
This article covers another behavioral study, Thaler and Benartzi’s Save More Tomorrow (SMarT) program (2004), which also deals with hyperbolic discounting, in addition to status quo bias and libertarian paternalism. This research duo has a common goal with the current study— to increase savings — but approaches it in a strategic and unique way with surprising results.
To what extent did cultural differences influence the financial decisions of the above study’s participants? As the author of this short article puts it, “it is not only that social forces influence our behaviors, but that, in turn, our behaviors impact societal outcomes.” Read on to discover more about influences on behavior.
Karlan, D., McConnell, M., Mullainathan, S., & Zinman, J. (2010). Getting to the Top of Mind: How Reminders Increase Saving. National Bureau of Economic Research. https://doi.org/10.3386/w16205