Common Cents leverages research and insights gleaned from behavioral economics to create interventions that lead to positive financial behaviors.
The Intention / Action Gap
In our study of 1,000 low-to moderate- income Americans, we found people have a strong desire for financial security, yet they have the feeling that they are not financially secure now. Notably, these same people could list about four ways that they personally could take actions to improve their financial situation.
This is what social scientists call the Intention / Action Gap. People have a big goal, they even may know what to do to reach this goal, but they predictably fail to take actions to achieve it.
We will specifically help bridge the Intention / Action Gap in these five areas where people have told us they need the most financial help.
- SAVING FOR EMERGENCIES
47% of Americans say they either could not cover a $400 emergency expense or would cover it by selling something or borrowing money. Our aim is to increase one’s ability to handle unexpected expenses, as measured by a significant increase in savings.
- SAVING FOR RETIREMENT
Almost one third of adults have not started saving for retirement. More alarming, almost 25% of adults age 50-64 have not started to save for retirement. Our aim is to increase assets for retirement, as measured by amount of money put away relative to current income today.
- LOWER DEBT AND INCREASE ACCESS TO GOOD CREDIT
When faced with financial hardship it is too easy to seek money through pawnshops, auto title lenders, and payday lenders. When faced with this surmounting debt, the system makes it easy to fall into the defeating and cyclical debt loop. Our aim is to make it easier to pay credit obligations and help provide access to good credit for low- or thin- file customers, as measured by average debt amounts and repayment rates.
- CASH FLOW MANAGEMENT
Nearly half of all households experience an income gain or drop of more than 25% over any two-year period. Roughly one quarter of individuals can expect to see even larger changes – 50% or more – from year to year. Our aim is to design ways to better manage income and expense shocks, as measured by one’s ability to smooth consumption and an increased confidence in one’s financial life.
- REDUCE SPENDING
Low-income families spend a far greater share of their income on core needs- such as housing, transportation, and food- than upper-income families. For example, households in the lower third of income spent 40 percent of their income on housing, while renters in the middle third spent 25 percent and the top third 17 percent, as of 2014 (Pew’s analysis of Bureau of Labor Statistics Consumer Expenditure Survey Public-Use Microdata, 1996-2014). Our aim is to help reduce spending on key expenses, as measured by spending during the month.