Many people use the turning of the calendar as a chance to begin anew and make specific lifestyle improvements. This has probably never been truer than for those ready to leave 2020 behind.

Saving more money is always a popular New Year’s resolution, but it’s also one that’s often more challenging than expected. In fact, a 2019 poll found that nearly half of US adults made a New Year’s goal to save more that year, yet only half of the participants actually met their savings goal.

Given that 2020 likely left many Americans resolving to build up an emergency savings fund or restock a depleted one, here are five strategies to increase your odds for success this coming year.

1. The Magnificence of Significance

One easy, but often overlooked step is to make a more specific or meaningful resolution. Everyone knows we’re supposed to have an emergency savings fund. But a vague obligation can make it hard to remain motivated throughout the year. Instead, research shows that attaching significance to your saving or a reason why you save can improve your chances for success.

For example, instead of committing to “save more”, resolve to “save for emergencies so I don’t have to skimp on groceries for my family.” This personal significance motivates us to work harder towards achieving the goal.

Beyond a clearly articulated reason, make your resolution even more specific by defining the amount you’ll save, when, and how. Committing to “save to avoid skimping on groceries by putting $25 every pay period into a separate savings account” makes it much more concrete and therefore harder to ignore. The actual transfer can be easily scheduled using an online bank account or mobile app.

2. Make It Easier on Yourself

One scientific way to achieve higher speeds in a car is to reduce friction. Similarly, behavioral science shows that savers can better reach their goals by removing barriers or impediments to saving.

The profound imbalance between systems pushing you to spend and encouraging you to save, having to recall your savings intention each month, and manually transferring the money between accounts all create unnecessary roadblocks. To overcome them and reduce friction, make emergency savings automatic.

Many direct deposit programs allow you to split your payroll deposit into a checking account and a separate savings account. If you are unable to use direct deposit to split your income, schedule automatic transfers within your bank or credit union to move money from checking to a savings account.

If your income is variable rather than the same each pay period, then you may want to consider using a savings app such as Qapital that lets you define a percentage of your income (rather than a dollar amount) to automatically save towards emergencies.

3. Separate Buckets for Separate Jobs

Keeping emergency funds separate from your checking account is a critical first step. But a next level savings strategy is to open a second savings account distinct from general savings.

A second account for discretionary spending like a vacation or new vehicle only after you’ve put the money aside is a useful way to handle non-emergency needs. Holding funds separately lessens the chance you’ll justify dipping into the emergency fund for non-emergency purchases. And a label is a powerful deterrent!

Apps like Smarty Pig, Chime, and Digit or even your online banking account allow for the creation of multiple, named buckets.

4. Everybody Makes Mistakes

Critical to achieving our long-term goals is having the ability to recover when we slip up. Accept that we may sometimes make mistakes. Then identify what might take you off-track again and make a plan for how to avoid it or minimize the potential derailment.

Are you prone to overspending when you eat out? Then consider a commitment to decrease your entertainment spending by the same amount whenever that happens to continue making progress on your emergency savings goal. You can flag these mistakes by setting parameters within a personal finance app or simply by reviewing your credit card or bank statement each month.

Having a plan will make you feel more in control and more likely to recover from mistakes.

5. Rinse, Wash, Repeat.

It’s important to remind yourself that it’s okay to spend your emergency savings. The entire point of this account is to use it when you have a flat tire, doctor’s bill, or another unexpected expense.

The account allows you to avoid putting emergency expenses on costly credit cards, taking out a payday loan, or asking family and friends for support. So, when an emergency arrives, it’s wise to spend down your account.

The key is to then refill the account. Automated savings contributions sent to a savings account distinct from discretionary spending buckets will make it easy. Rinse, wash, repeat.

Margaret Bolton and Shanta Ricks are Behavioral Researchers in the Common Cents Lab at Duke University’s Center for Advanced Hindsight; the Common Cents Lab is funded by the MetLife Foundation and supported by Blackrock as part of BlackRock’s Emergency Savings Initiative.

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Researchers who are interested will partner with financial services providers to pilot and test behaviorally-informed solutions to improve financial wellbeing of their clientele. This field-based research will be complemented with analysis of existing administrative data to evaluate solutions aiming to increase earnings, decrease debt, and manage cash-flow.

We will select 3 research proposals. Selected teams be provided

• $25k-$28k for a one-year project
• Chances of collaboration and co-authorship with Common Cents lab

Who are we looking for:

As per the Call for LOI, proposal teams must have a lead PI faculty member or full-time researcher from a university in mainland China.

Application Requirements:

LOI Research plan (1 page maximum – single spaced, 10 point font, 1” margins) including:

Title of the research project

1. Target low-to-medium income population you are interested
2. Statement of scientific objectives and their significance: what problem you want to solve for that population
3. Proposed field partners to work with for data collection, and if there is established relationship with the field partner.
4. Preliminary research (optional)
5. Budget plan (in 50 words)

CV of the leading PI (limited to three pages)

All documents need to submitted in English

Submission Date and Format

Please combine all required elements into a single pdf document with the subject line of “Name of the institution + short project title “ Please submit the proposal by 20 January 2021 via email to the contacts listed below:

Jiayu Zhao (Common Cents Lab):  jz335@duke.edu

Zhengting He (Duke Kunshan University): zh133@duke.edu

Shortlisted candidates will be notified by 04 February 2021 to submit a full proposal.

For information in Mandarin about the this call for letters of intent, click here: Call for LOI

The post Common Cents Lab Global Team Is Calling for Letters of Intent From China appeared first on Center for Advanced Hindsight.

Introduction

Throughout this year (2020), the Common Cents Lab has been working on the expansion of our applied behavioral research approach to improve the financial health of low- to moderate- income (LMI) households in Mexico, Turkey and China. Following a train-the-trainer model, we partnered with 3 organizations in Mexico (New Ventures Group, CIRKLO and Proyecto ICCE – UNAM) and 3 organizations in Turkey (BUBA Ventures, CARF and FODER), who are currently leading projects with different financial services providers (FSPs). We also established a co-learning network in China with research teams from universities to implement some field studies and expand knowledge in the field of applied behavioral science.

Our experience in the United States, launching around 100 projects with over 60 financial organizations, has proven our ability to improve key financial behaviors such as: increasing short- and long-term savings, reducing expenses, reducing debt and, when possible, increasing incomes. Moreover, we have built a deeper understanding about how individuals, especially those underserved, make financial decisions in varied and challenging contexts. People are over-optimistic and fail to prepare for financial emergencies, they take on more debt than they can manage and repay it in less than efficient ways.

We have a strong and supported conviction that to change financial behaviors, the context in which decisions are made matters.

Financial challenges are global. The COVID-19 pandemic has exposed and worsened the financial challenges that people face. Before the pandemic, 71% of adults in high-income countries reported saving any money, while only 43% of adults in developing countries did so. From this last group, only 1 in 5 adults saved in a formal financial institution, like a bank or credit union. While saving informally can have behavioral benefits in terms of leveraging social norms and cultural relevance, it also carries higher risks that are even higher in midst of the financial crisis. At the same time, while 73% of adults in high-income countries could come-up with funds to cover an emergency, this is true only for 50% of adults in developing countries, whose main funding sources would be social networks (family and friends) and extra work, instead of savings[1]. With a global decrease in savings and employment[2], these funding mechanisms are weaker and put those traditionally with low financial resiliency at an even higher financial risk.

Traditionally, countries and organizations have taken different approaches to solve these problems, mainly focused on developing financial knowledge and abilities. However, we have a strong and supported conviction that to change financial behaviors, the context in which decisions are made matters. As such, our work focuses on improving the environment, making it easier and attractive for individuals to make the right decisions that lead to financially healthy behaviors.

What challenges are we addressing in Mexico?

In Mexico, the main financial challenges can be represented by the “intention-action gap” behavioral principle. According to a financial literacy index[3] among OECD countries, Mexicans score 6^th in financial knowledge, 4^th in financial attitudes, but last in financial behaviors. What they want to do, and know how to do, doesn’t translate to healthy financial behaviors such as savings. While the number of Mexicans with a bank account has increased from 44.1% in 2015 to 47.1% in 2018[4], the share of people saving at a financial institution decreased from 14.5% in 2014 to 9.8% in 2017[5]. Traditionally, savings in Mexico have been supported by informal mechanisms, which explain some particularities of their savings behavior:

Source: BBVA Research and ENIF 2018.

As the graph shows, at least 63% of Mexicans use some sort of informal mechanism to save. Organizing a “Tanda”, giving money to relatives or holding a “piggy bank” at home are good starting points, but carry inherent risks. As such, our work in Mexico during 2020 is focusing on improving people’s savings behaviors, by “nudging” them towards more sophisticated and formal services. Specifically, we are working with the following financial partners:

1. Albo: Mexico’s leading challenger bank that offers a fully digital experience. While more and more users choose Albo to make transactions, very few of them are using Albo’s “Espacios” tool (partitions in the account for organizing personal finances) as a mechanism to build emergency savings. Given that most of Albo’s users have volatile incomes (independent workers, entrepreneurs, merchants), we are testing different automatic saving mechanisms, in order to implement the one that better fits their transactions and needs.
2. Curadeuda: A debt repair organization in Mexico that helps users consolidate and renegotiate their personal and credit card loans, while helping them save towards repaying their debt through a monthly savings program. Currently, 40%-50% of users who save in the first month don’t save in the second month and drop out. We know that indebted users can experience a scarcity mindset, limited attention or an ostrich effect that deters them from following through with their intentions. Therefore, we want to test if rewarding on-time savings with a chance to win a full debt repayment increases the probability of making savings on time and gets them closer to their savings goal.
3. NatGas: A company that helps taxi drivers save on fuel, by converting their cars from petrol to natural gas. Building on their financing mechanism that allows users to repay the cost of the installation every time the refill their tank, we want to test if we can get taxi drivers to start saving for specific goals through formal mechanisms. We aim to leverage communications as a way to overcome present bias and optimism bias, to get taxi drivers to save for car expenses (their main work tool), instead of using “piggy banks” at home or taking on expensive credit.

What challenges are we addressing in Turkey?

In Turkey, financial instability, mainly driven by macroeconomic factors and government policies, influences how people manage their day-to-day finances. The most recent OECD survey about adult financial literacy reported that 50% of Turkish had difficulties making ends meet at least once in the last 12 months and four out of ten adults had borrowed money at least once to cover their monthly bills and expenses[6]. Even more troublesome, the COVID pandemic is placing a toll on Turkish inflation, making it even more difficult for people to make sound and consistent financial decisions.

On the other hand, Turkey’s financial health environment shows an important gender gap[7]. While 83% of men have a financial account, only 54% of women do. A major challenge to overcome this gap is that 89% of unbanked women are not part of the labor force, compared to 69% of men. However, some opportunities arise in the fact that 88% of unbanked women have a mobile phone, and between 10% and 16% send or receive remittances and use informal savings mechanisms.

Cultural practices, uncertainty in the financial environment, and a Fintech sector that is starting to grow define the challenges we are facing to improve Turkey’s LMI households’ financial health. Specifically, we are working with the following partners:

1. Tarfin: A start-up aiming to increase farmers’ access to convenient farming loans that allow them to repay after harvest. Previous research shows that farmers tend to experience scarcity mindset as they run out of income before harvest season. As such, we are exploring ways to present Tarfin’s loans as an alternative to avoid income scarcity throughout the farming season and prevent farmers from taking on more expensive loans.
2. CARF and FODER: One of the consequences of being unbanked in Turkey is the failure to build a credit score that provides access to even more beneficial financial products and services. With two different organizations, we are exploring alternatives to help users improve their credit payment behavior (such as credit cards or utilities), by reframing the benefits of better credit scores and using reminders to overcome limited attention.

What challenges are we addressing in China?

China has a population of 1.386 billion[8], of which 58 percent is located in urban areas and is classified as an upper middle income by the World Bank as of 2017^[9]. However, due to the regional imbalance of social economic development, the phenomenon of rural relative poverty remains prominent in central and western China[10].

Research has showed that disease was the main cause of poverty in China, and the lack of natural endowment, poor geographical conditions and poor ecological environment were major barriers to reduce poverty[11]. Households with elderly and disabled members are inherently vulnerable to poverty, and among population in rural China, the number of people in poverty due to an illness was 44.1%, and those in poverty due to long-term chronic diseases was 22.8%[12]. In general, the long-standing urban-rural dualistic structure, along with the natural resources and social factors that restrict rural development, resulted in a total of 43.4 million people still living in poverty at the end of 2016[13].

More and more young people choose to migrate to cities for better earnings and careers, some leaving their wives in the rural area to take care of the families.  Those migrant workers are a special group in urban cities in China. While they contribute to the local economic growth, especially in major cities, they do not enjoy the rights of urban residents and are not sufficiently protected in and outside of work due to policies. Those workers would take jobs other urban residents are unwilling to do, and live in poor housing conditions, and their kids would not have access to public school systems in the cities[14].

Aiming to solve financial problems of LMI population impacted by disease and urban-rural dualistic structure, we are planning to implement projects in China. However, given the political and economic context, it is unlikely that the CCL will be able to operate in China through the same NGO pathways as in Mexico and Turkey. In association with Duke Kunshan, a co-learning network instead will provide funding and other support to three research projects per year in China, to explore solutions aimed at increasing earnings and decreasing expenses, and to expand knowledge in the field of applied behavioral sciences.

1. Duke Kunshan University: Health care expenses can be a major burden for rural households. To tackle the issue, China added 70 new drugs (including 14 for chronic diseases) to the list of medicines covered by its medical insurance program, cutting the cost by up to 80 percent, but the awareness of the policy among patients is relatively low. The research team is working on reducing the economic burden of chronic diseases for rural elderly patients by increasing awareness and take-up of the China’s cost reimbursement system. The hypothesis is that by working with village doctors and collecting data, they could design field-based interventions that increase the number of people who take advantage of this reimbursement system, which contributes to their family’s financial health.
2. Fudan University: The number of migrant workers still increases year by year, with over 51% of them being the new generation of migrant workers (born in 1980 and after). Survey showed that those populations frequently shift between temporal jobs, and lack clear goals and motivation. The research team plans to use education and gamification methods to look at how changes to working patterns and other behaviors could improve migrant workers’ financial well-being.
3. Peking University: Keeping other conditions equal, the households with working women have higher living standards both objectively and perceived. The overall objective of the project is to help left-behind women (wives whose husbands migrated from rural areas for employment in cities) to commit to more labor supply outside the home and gain a stable source of income. This research project will also examine the mechanism that helps rural low-income populations form better habits of budgeting and planning, and how to guide them to achieve long-term financial goals by low-cost, implementable and logical behavioral tools.

Next steps

Overall, these projects are a unique opportunity for the Common Cents Lab to test our applied research approach in novel settings, as well as to keep building evidence for behaviorally-informed interventions as mechanism to improve financial health. In the next months, our focus will be on designing and rigorously testing these interventions, while preparing ourselves for a new round of international partners for 2021.

Common Cents Lab Global Partners

[1] World Bank. The Global Findex Report 2017

[2] McKinsey (2020). Financial life during the COVID-19 pandemic.

[3] SHCP. Financial Literacy Index in Mexico 2019.

[4] National Financial Inclusion Survey in Mexico (ENIF 2018)

[5] World Bank. The Global Findex Report 2017.

[6] OECD. OECD/INFE International Survey of Adult Financial Literacy Competencies. Paris: OECD, 2016

[7] World Bank. The Global Findex (2017). https://blogs.worldbank.org/allaboutfinance/call-turkey-close-financial-gender-gap

[8] The World Bank, “China Overview.”

[9] Ibid

[10] Liu Y, et al. Regional differentiation characteristics of rural poverty and targeted poverty alleviation strategy in China. Bull Chin Acad Sci. 2016;31(3): 269–72.

[11] Liu Y S, Liu J L, Zhou Y. 2017. Spatio-temporal patterns of rural poverty in China and targeted poverty alleviation strategies. Journal of Rural Studies, 52: 66–75.

[12] The China National Health Council implements a health poverty alleviation project to prevent rural poor from becoming poor due to illness and returning to poverty due to illness. 2017. http://www.nhc.gov.cn/xcs/2017hydt/201703/399de486b5e044a89dfed9e8c1ff596e.shtml

[13] The National Bureau of Statistics of China. The series of economic and social development achievements in the 40 years of reform and opening up. 2018. http://www.stats.gov.cn/ztjc/ztfx/ggkf40n/201809/t20180903_1620407.html

[14] Li JW (2002). On protection of the labor rights of migrant workers. Academic Exploration 5: 71–74. [In Chinese]

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Despite all the uncertainty around us, there are many reasons to remain optimistic, such as an uptick in positive behaviors.

Improved Personal Hygiene 

For example, public health experts have been trying for decades to get us to wash our hands to prevent the spread of infection. Coronavirus has finally motivated us to wash as thoroughly and for as long (at least 20 seconds) as the experts recommend. People want to reduce their risks of spreading the virus, but making hand-washing fun and social has also helped increase this behavior.

The Overdue Return of Emergency Funds

Qapital Emergency Savings Goals

But people are not just trying to reduce health risks; they’re also looking for ways to reduce their financial risks.  Last year, it was estimated that up to 40% of Americans say that they would be unable to cover an unexpected $400 expense.  One way to mitigate financial shocks is to create a savings cushion, or an emergency fund, to allow you to cover unexpected costs.

Over the last few weeks, the proportion of new Qapital users creating an emergency savings goal has increased by 500%

Data from personal finance app Qapital indicate that many of its users are taking the financial impacts of coronavirus just as seriously as the potential health impacts.  Over the last few weeks, the proportion of new Qapital users creating an emergency savings goal has increased by 500% compared to the time period before the Coronavirus outbreak (from just 2.5% of users to more than 15%).  These emergency savings can blunt the impacts of future financial shocks and help give people some feeling of control over a difficult situation.

The COVID-19 crisis has made people connect emotionally to these risk-reducing behaviors.  While we hope that people continue these newfound health and financial habits once the crisis is behind us, we have to ask ourselves: will hand-washing or the increased attention to savings last?  Tragically, that depends on the length of this crisis: the longer the stress from COVID-19 sticks around, the better the chances that the newfound habits will stick around, too.

The post Reducing COVID-19 risks: From hand-washing to emergency savings appeared first on Center for Advanced Hindsight.

America has a savings problem. The most recent U.S. Financial Health Pulse for 2019 found that 47% of people in America do not have enough savings to cover the recommended three months of living expenses. Even worse, 12% of people have less than one week of living expenses saved.

This lack of cushion has serious implications for a person’s ability to weather financial shocks. It also places an enormous amount of stress on a person that can impact other parts of their lives.

We believe the problem is rooted in the way the human brain operates within our current consumption and savings environment and resulting product design. Here at Common Cents Lab, we focus on helping companies and employers build products that take advantage of human tendencies in order to naturally produce better outcomes.

Since 2016, we’ve conducted 106 unique projects and experiments with 67 organizations reaching more than two million low- to moderate-income (LMI) people. By the end of next year, we expect to reach at least 125 unique projects with 85 organizations.

Now, as part of the BlackRock Emergency Savings Initiative alongside Financial Health Network and Commonwealth, we are able to test our assumptions around the human brain and savings by helping brands and employers like Etsy, Mastercard, Uber, UPS, and others build better savings tools.

As we help develop and test these ideas for better savings tools, we’re going to be asking ourselves: “How can we apply Behavioral Economics to make savings products as easy, attractive, and motivating as possible?”

For example, can we improve savings rates by asking people to commit to saving money before they actually have it – testing a technique called pre-commitment? Or could we test mental accounting – the idea that people treat money differently based on where it comes from and where it’s going – to ask people to designate an income stream like cash tips or a windfall such as a tax return to savings?

But the key word in all of this is test.

The Common Cents Lab approaches behavioral economics and our work with partners in the Emergency Savings Initiative like a medical or pharmaceutical trial approaches their research.

At Common Cents Lab, we use Randomized Controlled Trials (RCTs) that feature control and test groups to determine whether our new idea or intervention worked in the way we expected it to and is worth the investment to implement further. RCTs are conducted in a way that allows us to pinpoint with confidence which intervention or product feature led to a desired outcome.

To illustrate, if we want to help people save part of their tax refund, we could work with a financial institution to set up tests for different product ideas, including:

1. Recommend to one group of people that they save part of their refund
   (Control group)
2. Ask one group of people to pre-commit to save a portion of their tax refund
   (Test group 1)
3. Have one group of people send postcards to themselves that will arrive around the same time as their refund, reminding themselves to save part of the money
   (Test group 2)

We can then see how many people ended up saving a portion of their tax refund for each test, and if the number of savers was different in each group. The partner then has actionable results upon which they can base a change in their product or service.

Importantly, as the name RCT suggests, people from that financial institution would be randomized to one of the different groups. That means that the researcher or financial institution does not control who gets put in each group – each person will end up in one of those three groups by chance, in order to remove any bias or any other potential explanation for the difference in savings rates.

While RCTs often require a lot of attention to detail and can sometimes take more time to run properly, they are the “gold standard” in Behavioral Economics and truly the best way to confidently say whether an idea worked and by how much. Perhaps the highest recognition of the value of RCTs was in the award of the Nobel Prize in Economics to Kremer, Banerjee, and Duflo for their work in tackling global poverty using RCTs in 2019.

We look forward to working with BlackRock, Commonwealth, Financial Health Network, and the Initiative’s corporate partners to test new ways to help people save. Together, we can reverse the trend in America’s savings habits and help millions of people build emergency savings cushions that will lead to better overall financial health.

The post The Role of Random in Addressing America’s Savings Problem appeared first on Center for Advanced Hindsight.

Applications for 2019 Financial Services Projects will be due on Wednesday, November 14th, 2018, by 5pm PST.

The deadline for 2019 Financial Services Project Applications has been extended to Tuesday, November 20th, 2018, by 5pm PST.

Click Here to Complete the Application

If you have any questions, please email 2019applications@commoncentslab.org

In 2018, Common Cents partnered with a mix of top fintech companies, financial nonprofits, and innovative credit unions to increase short- and long-term savings, improve access to credit, and better manage debt and cash flow.

The Common Cents approach to designing financial interventions is informed by a three-step process for behavioral diagnosis that includes identifying the specific and desired key behaviors, removing the barriers impeding that behavior, and then amplifying the benefits of that behavior.

About The Common Cents Lab

The Common Cents Lab, supported by MetLife Foundation, is a financial research lab at the Center for Advanced Hindsight at Duke University that creates and tests interventions to help low- to moderate-income households increase their financial well-being. Common Cents leverages research gleaned from behavioral economics to create interventions that lead to positive financial behaviors. The lab is led by famed Behavioral Economics Professor Dan Ariely and is comprised of researchers and experts in product design, economics, psychology, public policy, advertising, business administration, and more.

To fulfill its mission, Common Cents partners with organizations, including fintech companies, credit unions, banks, and nonprofits, that believe their work could be improved through insights gained from behavioral economics. To learn more about visit Common Cents Lab.

About MetLife Foundation

MetLife Foundation was created in 1976 to continue MetLife’s long tradition of corporate contributions and community involvement. Since its founding through the end of 2015, MetLife Foundation has provided more than $744 million in grants and $70 million in program-related investments to organizations addressing issues that have a positive impact in their communities. In 2013, the Foundation committed $200 million to advancing financial inclusion and has reached 3.5 million low-income people in 39 countries to date.

To learn more about MetLife Foundation, visit www.metlife.org.

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Take a moment and think about the most important financial decisions you make in your life: buying a house, investing for retirement, or saving for your kids’ education. For most of your life-altering financial decisions, you will likely have your spouse by your side. Making financial decisions with your loved one, however, is stressful. In fact, financial decisions can make or break marriages: finances are the leading cause of stress in a relationship, and the second leading cause of divorce in the United States.

Yet, despite the high stakes involved in making financial decisions with spouses, people often fail to seek out financial advice. In the Survey of Consumer Finances conducted by the Federal Reserve, only 29% of households reported receiving advice on investment and borrowing decisions. Moreover, a study using data from the American Life Panel discovered that only 18% of respondents reported asking for retirement and investment advice. Research indicates that financial advice can effectively improve financial well-being, as it facilitates better goal-setting.

Given the benefits of financial advice on one hand and the difficulty of seeking advice on the other, we were curious to explore the following question: can we get couples to seek out financial advice?

To answer this question, we asked 757 married respondents to allocate their monthly household income across a variety of categories, including food, housing, debt, and saving. We randomly assigned participants to one of two conditions. People in the first condition were asked to think about how they made financial decisions alone in the past month, while people in the second condition were asked to think about how they made those decisions with their spouse. After they allocated their budget, we then asked participants whether they would like to make an appointment with a financial advisor to review their allocation.

We found a surprising result: while our manipulation did not impact how participants allocated their money across the different categories, it did impact the likelihood of seeking financial advice. Participants who were primed to think about their spouse were 25 % more likely to seek out financial advice.

p-value=0.02

Our results indicate that people are more likely to seek financial advice when they are asked to think about their partners. While it’s still too early to conclude where and how we should offer financial advice to couples, prompting people to have their partners in mind could in itself be a solid first step towards seeking financial advice. Advice to couples: next time you make a financial decision, take a moment and think about your loved one first.

The post Does Thinking About Your Spouse Change Your Financial Behavior? appeared first on Center for Advanced Hindsight.

The problem is, though, regardless of how strong our intentions are, setting goals and forming intentions does not always translate into behavior. In fact, research has consistently found an “intention-action gap.” We don’t always follow through or behave in the way we wanted to, often falling short of our goals in consequence.

We see this all the time with regards to our finances. We may want to put a little a side in case of emergency or pay more towards our debt, but for a number of reasons we fall into the “intention-action gap.” Even worse, the gap may feel especially wide if we are poor or if we have uncertain, volatile incomes that make it difficult to consistently match our expenses with our income.

Financial coaching represents a promising way to overcome the intention-action gap and help those struggling financially to find greater stability. Several recent evaluations have found that those who participate in financial coaching are more likely to engage in positive financial behaviors and they experience significant improvements to their financial circumstances in terms of employment and changes in their credit score.

The process of setting, working towards, and, ultimately, achieving personal goals is at the heart of financial coaching. While coaches offer expertise and support along the way, participants have the responsibility to set and achieve their own goals. In this way, participants’ self-determination is central to coaching and likely plays a role in driving its success: participants develop greater intrinsic motivation when they set goals themselves. However, this also means that participants must commit the time and effort in order to get the full benefits from coaching. Many do not make this commitment.

Financial coaches, then, face an important tension: they must push participants to set their own goals and help them develop intrinsic motivation while recognizing that they must first engage participants before they can really build this kind of motivation. Caught in this tension are questions around retention – what are the factors that make participants more likely to engage and commit to financial coaching early in the process? How should coaches build the relationship with participants? Are there different ways of engaging participants that might increase how many continue with the financial coaching program?

Over the past 18 months, LISC and the Common Cents Lab at the Center for Advanced Hindsight have partnered to explore just this question. Using insights from an in-depth behavioral diagnosis, we designed several potential interventions that addressed barriers faced by many coaching participants. We tested two of these interventions in 24 different Financial Opportunity Centers across 10 different cities:

1. A visual goal-setting exercise, where participants selected one of eight photographs that captured what they wanted in their financial future.
2. A postcard that participants wrote to themselves in the future to remind themselves what they wanted in their financial future.

After a rigorous evaluation of our interventions, we found encouraging results. Even after controlling for individual characteristics and accounting for variations between the sites, the visual goal setting exercise significantly increased average retention. We also see that the visual goal setting exercise motivated participants to attend more sessions, both in total and within 3 months of enrolling in the program.

We also found that, although it did not further increase retention, the postcard to future-self did have a significant, additive effect. Writing the postcard to future-self likely further increased the number of sessions that the participants attended and decreased the average number of days between those sessions.

Taken together, our analysis suggests that both interventions increased participants willingness to engage with financial coaching.

There are a number of reasons why we think these interventions worked. The visual goal setting exercise leveraged the emotional power of photographs to help participants better connect with their long-term goals. This intervention digs deeper into how we interact with visuals and photographs – when we “see” a photograph, we do not just see static images. Instead, we intuitively connect them as part of a broader context or story. These stories make it far easier for us to connect emotionally with images and photographs. This emotional connection is important because it helps participants to build intrinsic motivation as they work towards their goal.

On the other hand, the postcard was intended to work both as a reminder (coaches actually sent it to clients if they missed a session) and as a short-term commitment device. However, coaches did not send very many postcards, even when they missed a session. Yet it did not seem to matter. The postcard forced participants to focus their attention and to take a moment to summarize their feelings about the card they selected. This reflection and summary of why they picked the photograph they did seemed to make it feel more meaningful.

More generally, these interventions suggest we should re-think what it means when someone drops out of a program. It’s easy for us to think that, “this just isn’t the right time for them” or that “they will come back when they are ready.” This places the responsibility with the participant when in fact the problem may be that we are not engaging them in the most effective manner.

Indeed, this research suggests that someone’s willingness to engage with financial coaching is not simply a function of a participant’s financial circumstance and their individual motivation. Their willingness to continue to work with their coach is shaped by a larger set of influencing factors than we tend to believe. The interventions described here represents one successful effort to re-design a goal setting activity to be more motivating. There are others, and moving forward, we should continue look for different ways to interact and communicate with participants about their goals so that they are more likely to make it across the intention-action gap.

If you would like to read more about this research, please check out our report here:
Applying Behavioral Science to Increase Retention in Financial Coaching Programs

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There are two simple ways to climb out from under the mountain of debt.  One way is to decrease our expenses. Another way is to call your credit card company and ask for a lower interest rate. Decreasing expenses and changing our habits is hard, so we shifted our focus towards getting an interest rate reduction.  Making the call is simple and just takes a couple of minutes to do. In fact, in a survey of over 2,400 people, 60% of those who call their credit card companies are successful in reducing their interest rates. Sadly, just 9% of them had actually called their credit card company to ask for a lower interest rate within the last three years.

To get some more color on how these negotiations actually go, we invited a few individuals to come to our office and negotiate a lower APR on their credit cards. Across 12 different negotiations, 8 were successful in getting a APR reduction, lowering their APR by a total of 49 absolute percentage points.  All in 10 minutes or less!

Given these results, why don’t more people ask?

One reason is that we just don’t like to negotiate. In a study conducted on recent MBA graduates, only 7% of women had attempted to negotiate their employer’s initial salary. And while men fared much better, only 57% of them had tried to negotiate.  

Another reason why we don’t ask is that we underestimate the power of asking.  In one study, participants had to successfully get three strangers to let them borrow their phone to make a call. Participants expected they would need to ask ten strangers to get three phone calls.  But, in actuality, they only needed to ask six.

This is a good reminder of the old adage: “Ask and you shall receive.”   How can you ask? Here are our top 3 tips.

• Put time in your calendar today to do it a week from now.  It’s never a good time to call, but if it’s on our calendar, we are more likely to follow through.
• Do it with your friends and make it a game.  Compete on who can get the biggest APR reduction.  
• Don’t give up after your first “no.”  Just keep asking. You’ll eventually get a “yes.”

If we all did this one ask, we could save $129 billion in interest.  So get to asking! What are you waiting for?

The post Asking Pays off – Save Money with Just One Phone Call appeared first on Center for Advanced Hindsight.

San Francisco, CA and Durham, NC – March 1, 2018 – Common Cents Lab, a financial research lab at Duke University supported by MetLife Foundation, today unveiled the 14 new behavioral design partners selected for its work in 2018. Each year, the lab chooses a new group of financial services providers to custom design, test, and launch new features and products that aim to increase financial well-being for 1.8 million low- to moderate-income (LMI) households in America.

“The human brain routinely sabotages our best intentions and causes us to make poor financial choices,“ said Common Cents founder, Behavioral Economics Professor, and New York Times bestselling author Dan Ariely. “This year’s outstanding class of partners shares a desire to serve up products and services that use lessons from behavioral science to help people make better financial decisions.”

“We are excited to be a part of the 2018 Common Cents cohort,” said Maia Bittner at Pinch. “By leveraging their insights into human behavior, we hope to build a solution that builds credit for our customers by tracking actions they are already taking (like paying rent), thus enabling them access to more and better financial opportunities.”

These latest partner financial organizations represent a mix of the most innovative fintech companies, state and local governments, financial nonprofits, and credit unions, and were chosen from a field of competitive applicants. Their year-long collaboration with Common Cents will focus on interventions that increase short- and long-term savings, improve access to credit, and better manage debt and cash flow.

Fintech partners include:

Clarity Money: helps users view, analyze, and make smarter decisions about their money via an easy-to-use mobile interface backed by data science and machine learning.

LendStreet: provides a debt reduction loan to help people get out of debt, rebuild their credit and get a fresh start.

Narmi: provides digital banking applications and channels for financial institutions to improve their mobile and online banking experiences.

Pinch: a mobile app using rent payments to help people build a credit history.

Uptrust: uses text message court date reminders to reduce low-income failure-to-attend rates by 75%, helping to keep them out of jail.

Nonprofit partners include:

Earn: a national, award-winning nonprofit, whose mission is to create prosperity for low-income families by helping them save and invest in their futures.

Vouchers for Veggies: a program increasing access to and affordability of healthy foods for low-income individuals and families using free vouchers for fruit and vegetables.

Vera Institute of Justice: a criminal justice research and policy organization that, among other pressing issues, focuses on bail reform so that people are not deprived of their liberty simply because they cannot afford bail.

Credit union partners include:

Lake Trust Credit Union: Michigan’s largest Community Development Financial Institution (CDFI). Through their CDFI certification, Lake Trust is dedicated to finding unique financial solutions that enhance lives and build communities.

Redstone Federal Credit Union: the largest member-owned financial institution in Alabama and one of the largest federal credit unions in the nation with a philosophy of “People Helping People.”

State and local government partners include:

Oregon Saves: a new initiative by the Oregon State Treasury to help Oregonians save for retirement at work.

Keystone Baby Scholars: a new program to seed higher education investments and advance financial empowerment for families.

San Francisco Office of Empowerment (OFE): a unique private-public partnership that convenes, innovates and advocates to strengthen the economic security and mobility of low income San Franciscans.

St. Louis Housing Authority: a high performing public housing authority serving over 9,900 families.

“Common Cents’ practical approach to working with partners – fintech or nonprofits or financial services – has led to real growth and impact for the half a million hard-working individuals and families who have improved their financial health as a result,” said Dennis White, President and CEO, MetLife Foundation.

These new partners are the latest class in a three-year effort to improve the financial well-being of 1.8 million LMI households in America. Common Cents’ goal is to gain scalable behavioral insights for new features and products that can improve financial decision-making in an economically viable way for businesses.

Common Cents today shared the results of its work with 16 behavioral design partners in 2017 as part of its Annual Report. To learn more about participating partners for 2018 please visit: https://advanced-hindsight.com/partnership/.

About The Common Cents Lab

The Common Cents Lab, supported by MetLife Foundation, is a financial research lab at the Center for Advanced Hindsight at Duke University that creates and tests interventions to help low- to moderate-income households increase their financial well-being. Common Cents leverages research gleaned from behavioral economics to create interventions that lead to positive financial behaviors. The lab is led by famed Behavioral Economics Professor Dan Ariely and is comprised of researchers and experts in product design, economics, psychology, public policy, advertising, business administration, and more.

To fulfill its mission, Common Cents partners with organizations, including fintech companies, credit unions, banks, and nonprofits, that believe their work could be improved through insights gained from behavioral economics. To learn more about Common Cents Lab visit www.commoncentslab.org.

About MetLife Foundation

MetLife Foundation was created in 1976 to continue MetLife’s long tradition of corporate contributions and community involvement. Since its founding through the end of 2017, MetLife Foundation has provided more than $783 million in grants and $70 million in program-related investments to organizations addressing issues that have a positive impact in their communities. In 2013, the Foundation committed $200 million to financial inclusion, and our work to date has reached more than 3.5 million low-income individuals in 42 countries. To learn more about MetLife Foundation, visit metlife.org.

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Press Contact:

Michael Azzano

Cosmo PR for Common Cents Lab

415/596-1978

michael@cosmo-pr.com

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