How goal-specific reminders increased savings by 16%

Planning fallacy: Our tendency to underestimate how much time a task will take and how much risk or cost it requires, even if we have already done this task before.

Hyperbolic discounting: The propensity to prefer immediate rewards over long-term ones, even when future profits are greater.

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).

Philippines

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.

Peru

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).

Bolivia

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.

Framework

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?

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. 

• 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.

Living a Behavioural Analysis

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.

How Automatic Saving Plans Save Users Twice as Much Over Five Years 

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.

How Does Society Influence One’s Behavior? 

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.