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.

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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.

San Francisco, Calif. and Durham, NC – March 1, 2018 – Common Cents, a financial research lab at Duke University supported by MetLife Foundation, today unveiled its 2017 Annual Report. The report details behavioral interventions aimed at improving financial health for low- to moderate-income people with more than 27 organizations over the course of 2017, including startups, credit unions, non-profits, and local governments.

The report constitutes one of the most significant applications of behavioral economics of its kind, documenting outcomes and lessons from 38 different projects and experiments. The work is part of a three-year effort supported by MetLife Foundation to improve the financial well-being of low-to-moderate income (LMI) households in America.

“The work of Common Cents clearly demonstrates that behavioral science can meaningfully help people save more and spend less,” said Evelyn Stark, Assistant Vice President of MetLife Foundation.

“Everyone aims to be financially stable, but we know that not everyone has the right decision-making environment to accomplish this goal,” said Common Cents founder, Behavioral Economics Professor, and New York Times bestselling author Dan Ariely. “Our work shows that by optimizing the environment, it is possible to build products and services that improve financial health, all while making the business more economically viable.”

Despite historic peaks for the S&P 500, low unemployment, and a decreasing poverty rate in 2017, the personal savings rate for Americans is at its lowest point in five years and credit card debt exceeded $1 trillion for the first time since the Great Recession. Set against this backdrop, Common Cents set out to help organizations build products and services that leverage basic human behaviors to increase income and savings, improve cash flow management, and decrease expenses and debt.

Examples of the lab’s findings and impact from the 2017 report include:

Default Retirement Saving Outside of Work:

Common Cents partnered with Self-Help Credit Union to increase retirement savings outside of an employer-sponsored program. Common Cents automatically opened a retirement savings account for new checking account holders who weren’t already saving for retirement. Anytime members received a deposit into their checking account, a portion would also be placed into this savings account. In the pilot, roughly 38% of eligible members decided to enroll in the retirement savings program, and over 30% of members have kept their account active.

Increase Saving by Appealing to Round Number Preferences:

In partnership with Latino Community Credit Union, Common Cents defaulted borrowers into a program that rounded up loan payments to the nearest $25 or $50. The extra payment went to a savings account that the borrowers could access anytime. The program earned a 26% enrollment rate. By reframing the opt-out box to highlight the potential missed savings, this enrollment rate increased to 38%.

Reduce Food Spending Through Peer Comparisons:

In an analysis of over 30,000 transactions, Common Cents found that eating out was one of Americans’ most regretted expenses. To help reduce these costs, Common Cents partnered with Arizona Federal Credit Union to show members how much they spent eating out compared to other members. Correlational evidence shows that these peer group insights might help to curb food spending in the short-term.

Use Natural Milestones as Motivations:

Common Cents partnered with Silvernest, a roommate matching service, to help older adults earn extra money by renting out a spare room. People are motivated to make a change when there is a natural milestone, like the New Year or turning 65. Utilizing this intrinsic motivation, click-through rates on Silvernest’s online ads doubled when they highlighted to 64 year olds that they would soon be turning 65.

Since its launch in 2016, Common Cents has conducted 57 pilots and experiments involving over 1.7 million individuals. To date, our work has led to $11.5 million in increased earnings, savings, and expense reductions. At scale, we expect our impact to grow to $113 million.

For detailed results of every 2017 intervention, to review a copy of the Annual Report, or to read more about participating partners please visit: https://advanced-hindsight.com/partnership/

About Common Cents

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 science to create interventions that lead to positive financial behaviors. The lab is led by 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.

###

Press Contact:

Michael Azzano

Cosmo PR for Common Cents Lab

415/596-1978

michael@cosmo-pr.com

The post Common Cents Report: Hacking Human Behavior to Improve Financial Health appeared first on Center for Advanced Hindsight.

San Francisco, CA and Durham, NC – Sept. 12, 2017 – Common Cents Lab, a financial research lab at Duke University supported by MetLife Foundation, today unveiled its first ever Millennial Regret Spending Study.

“While it’s common to regret the last thing we ate, it may be equally common to regret the last thing we bought,” said Dan Ariely, Professor and behavioral economist. “The feeling of regret, while not pleasant, may serve as a teaching moment to help us understand what we enjoy and what we don’t enjoy. By systematically understanding the things people regret, we can design systems that encourage us to spend our money on things that make us happier.

Conducted in partnership with Qapital, a fintech app focused on helping people save and spend better, the new study surveyed 1,000 Americans between the ages of 20 and 36-years old to identify which purchases they regarded as either most regretful or most satisfying. Through this effort, the team of behavioral economists isolated four positive personal financial habits that others may emulate to improve financial wellness and fulfillment.

Put the Essentials on Autopay

Participants were asked to rate how satisfied they were about recurring versus nonrecurring expenses across a number of categories. Almost universally, millennials rated their regret roughly 10% lower for recurring items. Since most recurring items are paid automatically, the idiom “set it and forget it” may carry more meaning than we thought.

Like millennials, others can limit the angst of rent and insurance payments by placing them on autopay. At the same time, make the payments you’re most likely to regret more obvious by using cash or one-time payment methods.

Spend on Enrichment and Others

Millennials reported being most satisfied when spending on necessities (utilities, rent) or personal enrichment (community, education). The study also tracked what times of the week and year produced the most satisfying purchases. Seasonally, those purchases made near Thanksgiving and through the first two weeks of December produced nearly 90% satisfaction as compared to months like October and February that dropped below 50%.

The lesson is that guilty pleasures often come with a heaping of regret, and that the greatest fulfillment can be gained from purchases that enrich your own life or are made for others.

Limit Impulse Purchases

The data clearly shows a greater level of fulfillment (roughly 70%) for purchases critical to living such as rent, healthcare and groceries over impulse purchases (near 50%) like digital purchases, coffee shops, and fast food. Similarly, those purchases made on Wednesdays were nearly five percentage points more satisfying than those made on Saturday.

The takeaway is that decisions made independent of the pressure and the heat of the moment can improve your overall financial happiness.

Sweat the Small Stuff

That final tally for that $4 latte may be much more in the long run, according to the survey findings as Millennials tended to regret smaller purchases much more than larger ones. On average, respondents reported a high level of satisfaction for purchases taking up a larger portion of their monthly income.

“Individually, these lessons seem intuitive, but taken together as a lifestyle, they can provide a blueprint for living a much more satisfying financial life,” said Kristen Berman, co-founder of Common Cents. “Interestingly, these are lessons that can be applied regardless of income level as a guide to improved financial decision making.”

An infographic Millennial Financial Regret Spending Study is available by request or can be found by clicking below.

Millennial Financial Regret Spending Infographic

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 2016, 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.

Today, the Foundation is dedicated to advancing financial inclusion, committing $200 million to help build a secure future for individuals and communities around the world.

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

The post Common Cents Lab Unveils Millennial Financial Regret Spending Study appeared first on Center for Advanced Hindsight.

1. Cut down on their tax preparation costs and get their taxes done for free at VITA sites
2. Save part of their tax refund.

Interested to learn what we found?

Check out our report.

Applying Behavioral Economics in New York City VITA Sites

The post Hot off the press: Our report on tax-time interventions at VITA sites appeared first on Center for Advanced Hindsight.

The State of Food Stamps Now

What is SNAP?

The Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is the United States’ federally-funded food assistance program for low-income individuals and families. The United States Department of Agriculture (USDA) sets the national guidelines governing SNAP, but individual state governments are responsible for designing their own application processes and distributing the benefits to their citizens. The Federal Government supplies 100% of the money for SNAP benefits, but splits the administrative costs of the program with individual states.

How much is given?

Benefits are usually deposited on a monthly basis, averaging $126 for an individual and $255 for a household. Since June 2004, all states have transitioned to loading the benefits onto an Electronic Benefits Transfer (EBT) card, similar to a debit card. Unlike a debit card though, the SNAP benefits cannot be redeemed for cash, or used on non-food items like hygiene products or medicines.

How many people participate?

About one in seven Americans participate in SNAP, making SNAP one of the most important government programs in the United States.^[1] In 2015, 45.8 million people relied on SNAP benefits to supplement their food consumption.

Sadly, only 75% of people eligible for SNAP actually participate in the program, which means 13.4 million qualified Americans are missing out on the aid they deserve.^[2][1]

Why do eligible people not participate?

The length and difficulty of the application process is a near insurmountable obstacle for many low-income Americans who already work multiple jobs in order to survive. It’s unsurprising to see that 14% of recipients in a recertification month don’t finish the recertification process, considering what we know about the human shortcomings that can obstruct us from achieving our ideal behavior.^[3] Successful applicants have to overcome the multitude of behavioral biases that work against their favor during the application process, which include hassle factors from the numerous forms, lack motivation due to lack of visualization of progress, and strong natural aversion to uncertainty.

What is the application process like?

The applicant needs to gather a ton of information and documents related to identity, assets, and work in order to give caseworkers a thorough picture of his or her financial situation. This means digging up a lot of your own pay stubs and receipts, but also the Social Security numbers, marital status, incomes of everyone who resides with you, regardless of whether others are also applying to SNAP with you. Every applicant must also schedule an interview  and periodically recertify their eligibility, as which can happen as often as monthly.

Although acceptance into the SNAP program could mean putting more food on the table, households have to weigh the costs and benefits of applying and reapplying, with the monetary assistance which needs to be periodically renewed. Successful applicants spent an average of 6.1 hours in the process and made 2.4 required trips to the food stamp office. Some applicants received unscheduled home visits and others were fingerprinted.^[3] Certain offices only open Monday-Friday, 8am to 5pm, making office visits extremely difficult for those who have jobs during the day or young children at home. In all, completing the application process can be a logistical nightmare, where all it takes to fail is one missing part.

What can behavioral economics tell us about the resistance to applying?

Too many decisions make default behavior more appealing.

The complexity of decisions that have to be made while applying to SNAP increases our vulnerability to a number of different behavioral biases. When our intended result is bogged down by multiple decision points, the social norm suddenly becomes far more appealing. The time lag between applying and receiving the benefits can also be too much to bear for some eligible Americans. When these low-income individuals are already just getting by, do they really have the time to complete an application that will only pay off in few weeks? Although food scarcity is a hard default to have, the immense effort of applying can dwarf the difficulty of staying in dire circumstances.

Myopia about application progress makes people quit earlier.

Research on the visualization of progress has shown that setting well defined end points is far more effective for completion than obscuring the finish line. ^[4] Surveys, especially longer ones, exhibit far superior completion rates when there is constant feedback on the progress made (3 questions out of 10 vs. 3 questions) ^[5]. The number of steps in the food stamp application process is very difficult to pin down, resulting in vague boundaries that staggeringly undermine motivation to finish.

Individuals are averse to the uncertainty about their own eligibility

Another reason individuals don’t enroll in the program is the lack of widespread certainty about eligibility requirements. In a USDA survey, 69% of nonparticipants would apply for SNAP benefits if they knew that they were eligible.^[6] Behavioral research has shown that people have a distinct preference for certainty, potentially increasing enrollment in SNAP if eligibility requirements become more common knowledge.^[7] Even more low-income Americans are at risk of being unaware of possible aid due to the 2014 Farm Bill, which prohibits federal funds from being used to pay for television, radio, or billboard advertisements that promote SNAP.

What is the SNAP Cycle?

Though acquiring the benefits appears to be the solution to constant food insecurity, the reality is that another host of difficulties arises after receiving the aid. The low-income individuals who make it through the long and complicated process of applying SNAP still have to carefully budget their small allowances. Contrary to the biweekly deposit schedules of most jobs, SNAP benefits are deposited in a monthly lump sum at the beginning of the month. An individual’s allotted benefit amount is based off the Thrifty Food Plan (TFP), which calculates the cost to buy a minimum basket of goods necessary to have a nutritious diet.

Surviving the month

Talking to SNAP recipients, we often hear stories of recipients who go hungry a few days at the end of the month.^[8] Circumstances like these have been well documented by economists studying SNAP spending, whose research shows that many recipients are trapped in a monthly cycle of eating and starving. Research published by the USDA found that recipients redeem more than 75% of their monthly benefit in the first two weeks after receipt.^[9] Although the deposits are supposed to last an entire month, overwhelmingly, the typical SNAP household tends to run out well before the month is over.

Why don’t the benefits last?

Time is scarce in low-income families

Some of the problems with SNAP benefits stem from the assumptions made by the perfectly optimized Thrifty Food Plan (TFP). The allotments are largely calculated using on raw food items that require significant preparation time.^[10] This makes sense because raw ingredients are cheaper than prepared goods, but the tradeoff unaccounted for is time. Typically, low income households have less free time than higher earning households, which makes this tradeoff especially crucial to consider.^[11] Research from Tulane University found that an average of 16.1 hours per week was needed to prepare and cook recipes based on the TRP.^[12] This means 2.3 hours a day that needs to be spent just to prepare the food, not even including shopping or cleanup time. When a household is struggling to survive, time becomes an extremely scarce resource.

Monthly deposits cause a windfall effect

The long period between deposit cycles also contributes to the cyclical hunger at the end of the month for SNAP recipients. Researchers from Yale termed this the “First of the Month Effect.” ^[13] They found that SNAP recipients do not budget their money regularly throughout the month. Grocery expenditures in the first week are 30% larger than in the last week. This was linked to consuming lower quantities of food, rather than choosing more food of inferior quality. Shapiro from Harvard also found that the caloric intake of Food Stamp recipients declines by 10 or 15 percent over the month.^[14] Low-income individuals on SNAP have difficulty budgeting for the month because they spend when biased by the hunger from last month. The impatience to eat can be immense and make planning for the future of the month.

Health Consequences

Since many so many individuals receive SNAP benefits, their habit of spending big in the beginning of the month causes grocery stores to increase prices to meet the large demand at the beginning of the month. The extreme consumption differences that result from this unbalanced spending cycle can have profound effects upon health and researchers from the Harvard School of Public Health recommend further research on whether the monthly SNAP cycle could be related to the risk of being overweight.^[15]

The post Managing the Month on Food Stamps appeared first on Center for Advanced Hindsight.