Background

Financial interventions for consumers and employees rely heavily on financial education, but financial education has demonstrated virtually no impact on behavior change, accounting for only 0.3% of the variance in financial behaviors. While financial coaching has been found to be effective at improving financial outcomes, it’s expensive to offer and suffers from high drop-out rates.

The Center for Advanced Hindsight (CAH) partnered with Moneymap, a high-tech, high-touch financial coaching platform, to experiment with ways to make financial coaching more effective at a more accessible cost.

We wanted to know:

● Does changing the tone of financial coaching affect outcomes? Specifically, we decided to vary the levels of:

_____○ Self-efficacy, or users’ feeling that they have the ability to meaningfully impact their _____ financial situation.
_____○ Accountability, or users’ awareness that their coach expects them to complete tasks.

● What contact method works best for financial coaching? Specifically, we wanted to study the effectiveness of two different methods of coach-client contact:

_____○ Phone calls, which are higher-cost, must be scheduled for a specific time and allow _____ for more direct, personal contact.
_____○ Self-guided surveys, which are lower-cost, can be completed at any time and result _____ in a more autonomous experience.

We also wanted to know how these different contact methods and tones combine to affect outcomes. To test these questions, we designed edits to Moneymap’s coaching program.

In Moneymap, participants have two touchpoints with their coach. Between these touchpoints, they accomplish three To-Do’s. After the two touchpoints, they enter into a sustain phase where they can contact their coach as needed.

Experiment Design

CAH implemented two interventions into the program design.

Call versus Survey

To test contact methods, we randomly assigned participants to either talk to their coach on scheduled phone calls or to take self-guided surveys that their coach would later review. Participants were defaulted into one of the two contact methods, but could switch from one contact method to the other.

Participants had two touchpoints with their coach – one at the beginning of the program and one after 4 weeks. For the first touchpoint, reviewing a survey required about 5 – 7 minutes of a coach’s time, while calls required about 20.  We wanted to understand whether experiencing the more efficient, lower-cost surveys would result in different outcomes for participants – specifically, whether condition would have an effect on completion rates for their two touchpoints and their three assigned To-Dos.

Examples of commonly assigned To-Do’s are included below.

Self-efficacy versus Accountability

To test tone, we customized language throughout the program to create two parallel experiences designed to either (1) build self-efficacy, or (2) increase accountability for completing tasks. Then, we randomly assigned participants to receive one of the two types of messaging.

In the field

Participants were recruited for the 6 month program between July 8th and September 6th, 2020, gathered from three small-to-midsize employers and one large online savings platform. Out of 2,795 people who began signup, 1,560 finalized their signup and are considered our participant pool. Attrition was evenly distributed across the four conditions. Because all but 143 participants were recruited from the online savings platform, we did not distinguish between recruitment sources in our analyses.

Results

Call versus Survey

207 participants chose to switch from the call condition to the survey condition, while only 7 participants chose to switch from the survey to the call condition. Significantly more participants in the survey condition completed the first touchpoint (p < 0.001). There was no significant difference in completion rates for the second touchpoint (p = 0.15).

The difference in completion rates between conditions seems to be driven by timing. Most participants in the survey condition chose to fill out the first survey right away (585 vs. 162), and those participants were more likely to complete it than those who delayed (98% vs. 36% completion).

While there was no significant difference in completion of the first or second To-Do based on contact method, participants in the survey condition were more likely to complete the third To-Do (p = 0.018).

Self-efficacy versus Accountability

When analyzed alone, messaging tone had no significant effect on outcomes. When we analyzed the combination of contact methods and tone, survey + self-efficacy outperformed the other three conditions, particularly in 1st (p = 0.018) and 3rd (p < 0.001) To-Do completion.

Income Breakdown

To better inform financial inclusion efforts within financial coaching and other initiatives, we also analyzed the effect of household income on touchpoint and To-Do completion.

Of participants who completed signup, 89% had a household income under $75,000.

Not surprisingly, touchpoint completion rates and To-Do completion rates increase with household income. Households earning under $25,000 annually (815 participants) were significantly less likely to attend touchpoints (p < 0.001), and significantly less likely to complete any To-Do’s (p < 0.001).

Implications of Findings

While this research had limitations, the largest being the short-term nature of the outcomes measured, these findings still unveil some valuable insights for those designing financial coaching programs:

Design for Time Scarcity

In this study, communicating via a self-directed survey was more attractive for participants, less costly for coaches, and resulted in similar or higher completion rates compared to a traditional introductory phone call. Consider developing a financial inclusion coaching program with less rigid touch points so that participants can complete them on their own schedule. Recent research on flexibility showed that flexible scheduling influenced both participation and longer lasting habit formation. While this recent work involved more than just flexible scheduling, providing flexibility remains important when designing for limited bandwidth.

Build on Momentum

Respondents had much higher touchpoint completion rates when they were able to take action immediately. Consider developing a self-directed option to take the place of one or more face-to-face touchpoints, particularly at junctions when participants may need to wait to speak with a person. The CFPB financial well-being questionnaire includes examples of perception-oriented questions that can be supplemented with specific financial data questions to give coaches a solid foundation for planning prior to ever sitting down with anyone.

__

This research was conducted in collaboration with Moneymap through the financial support of Prudential.

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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.

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Despite the United States being the only advanced economy in the world that does not guarantee its workers any paid vacation or holiday days, Americans often fail to use the few days of paid time off they do get. In 2015, 55% of Americans left a total 658 million vacation days unused – an equivalent to $61.4 billion in forfeited benefits (an average of $604 per person!)

Does this mean that Americans just don’t like vacations? Unsurprisingly, that’s not the case. When people are asked about their attitudes towards holidays, almost none say that they would want less time off. In fact, 95% of employees say that using their paid time off is very important to them. And, quite remarkably, a large survey found that no one thought their vacation was a waste of time or that they’d rather be working.

The lesson of this is clear: There is a gap between people’s intentions and behavior when it comes to planning and taking their holidays.

If vacation is so important, why do Americans still leave so many of their paid days off on the table?

In a nationally representative survey of 7,331 Americans, researchers at Project Time Off set out to figure out why people weren’t using their vacation days. The three most common reasons study participants gave were:

They fear that they’ll return to a mountain of work.

The most prominent reservation people have towards taking time off is the dreaded feeling of what awaits you when you get back. 43% of surveyed participants said that this fear was the biggest barrier to taking time off. And this may also be a problem even for those who do take time off; with the advent of technology, there is often an expectation that we should be reachable at all times, including when we are away from the office. In fact, more than 60% of people say they keep working remotely while on vacation – which often leads to disagreements with spouses.

They feel like no one else can do the work while they’re gone.

As people get more seniority in a company, 33% say that their position becomes the largest barrier to time off. Many fear that no one else can do the work for them while they’re gone.

We often fail to accurately account for how we will feel in the future. This appears to be no less true in the case of vacations. A study by Ed O’Brien and Ellen Roney found that people often prefer “saving” trips for when they’ve finished work, believing that they would be distracted otherwise. Of course, if you wait for work to end, you may be waiting for a very long time. Regardless, this intuition appears to be mistaken. Vacations can be just as enjoyable with work left behind. It turns out people fail to account for how absorbed they will be when they are doing something enjoyable.

They feel like their superiors will think less of them.

Another significant barrier to taking a vacation is that many feel like it may jeopardize their job security. Survey respondents fear that time off makes them look less dedicated at work, that it may make them lose consideration for a promotion or raise, or that they will be seen as replaceable.

The opposite appears to be true when we look at what actually happens. People who took fewer than 10 of their vacation days per year had a 34.6% likelihood of receiving a raise or bonus in a three-year period, while those who took more than 10 of their vacation days had a 65.4% chance. These “work martyrs” tend to be more stressed and less productive than their vacationing colleagues, and it doesn’t appear to be serving them well.

To fix it, plan ahead.

Some of the reasons Americans don’t take enough holidays are structural and should be addressed on a policy level or by employers. For example, U.S. policymakers could follow the example of their OECD counterparts and mandate paid vacation days. Or employers can make sure to model the behavior they want from employees, including explicitly encouraging them to use their vacation. However, as an employee, there are still things you can do yourself.

An effective way of ensuring your vacation days is to plan ahead. Among surveyed workers, 52% of those who say they set aside time each year to plan out their vacations use all of their days off, compared to just 40% of non-planners. We also tend to get a boost in happiness just from going through the motions of planning a vacation. One word of caution, however: Scheduling all activities on your trip can take the joy and spontaneity out of them. Instead, maintaining the free-flowing nature of the trip by “roughly scheduling” activities without pre-specified times increases enjoyment.

So, what are you waiting for? Now is as good a time as any to book your next vacation.

The post Here’s Why You Need a Vacation appeared first on Center for Advanced Hindsight.

Over the last few years, the Common Cents Lab has designed and run multiple experiments that infuse the best practices for VITA programs with insights from behavioral science. We are sharing the best of what we’ve learned about getting more people to use VITA and getting more VITA participants to save in our new report, “Behavioral Solutions for VITA Tax Providers.”

Each idea we highlight comes with pre-designed materials for you to use. All you need is the logo.

Interested in what we think works? Check out our report.

The post Looking for an impact idea for next year’s tax season? We got you covered. appeared first on Center for Advanced Hindsight.

Millions of Americans operate primarily in a cash economy. These individuals not only carry greater risk in storing their money, but also miss out on the potential benefits of savings products. This is true of a high percentage of members at the Latino Community Credit Union (LCCU), established in 2007 to serve Latino communities of North Carolina. Approximately 18% of all LCCU members walk into credit union branches with the purpose of cashing a check. The credit union targeted this problem to increase their members’ security and engagement with the credit union.

 To encourage more people to deposit part of their checks into an account, the Common Cents Lab partnered with LCCU to create check-cashing slips. Originally, LCCU’s process to cash a check was simpler than the process to make a deposit; deposits required members to fill out a slip, while cashing did not. Even a seemingly small hurdle can influence people’s decisions, so the greater convenience of cashing checks works against encouraging members to deposit some of their funds. Our suggestion to add a slip was not exactly exciting to LCCU – no one says “I know what customers want – more forms!” – but we emphasized that the existing process was encouraging the wrong behavior and pressed them to test this idea.

Tellers at LCCU were given randomized stacks of check-cashing slips to test different behavioral concepts. In addition to the “control” (a sheet of paper that indicated the member should not get a slip), there were three treatment slips:

• A “default” slip with the option to deposit 50% of the check selected
• The same “default” slip with a “risk waiver” on the back to highlight the potential loss of funds if the check is cashed
• An “easy check cashing” slip encouraging members to deposit a multiple of $10

Tellers provided the slips to members when they asked to have their checks cashed. Members were instructed to fill out the slip, and tellers provided help when necessary. Slips were provided in both Spanish and English depending on members’ native language.

While we only observed nominal differences among the three different types of slips, we did see a significant difference in deposit rates between having a slip and having no slip (the control). Almost 10% of customers who were given any kind of check-cashing slip made a deposit into savings – and on average, those deposits were $169! If LCCU rolled this out at all of their branches, we estimate they could help their members save $2.1 million per year and ultimately ensure greater financial security. This increase in deposits could ideally also lead to greater engagement with other credit union products, like long-term savings accounts or loans.

Almost 10% of customers who were given any kind of check-cashing slip made a deposit into savings – and on average, those deposits were $169!

While we often urge organizations to remove friction that impedes positive action, in this instance we added friction to prevent people from taking the wrong action. Sometimes people are seeking big, revolutionary changes to help address their problems, but this test proves that small tweaks can have powerful impact – and low costs to implement, too.

Maura Farver is a Senior Behavioral Researcher at the Center for Advanced Hindsight. She holds a Master of Environmental Management degree from Duke’s Nicholas School of the Environment and an MBA from UNC’s Kenan-Flagler Business School. Her research focuses on behavior to increase financial well-being and she is also interested in environmental health behavior.  Maura can be reached at maura.farver@duke.edu.

The post Give ‘Em The Slip: Using Friction for Savings appeared first on Center for Advanced Hindsight.

This year, the Common Cents Lab at CAH is partnering with two Children’s Savings Account (CSA) programs in the U.S. With our first experiment finished and several more under way, read up on what we’ve found and how we think behavioral science can be used to help low-income families save for college.

Children’s Savings Accounts are a recent innovation in the world of asset building and already demonstrate unique promise for bridging inequalities in education. From preliminary studies with a CSA program in Oklahoma, parents randomly assigned to receive $1,000 in a CSA at birth showed increases in college expectations for their children.¹ These improvements in college expectations have been linked in separate studies to improved academic performance and increases in college enrollment.²³ However, since most CSA programs are relatively young, the scientific jury is still out on how to best structure and administer these programs to help low-income families save for college.

Our approach assumes that low-income populations are capable of saving, but have unique challenges beyond a sheer lack of funds.

To contribute to this growing body of research, we partnered with two CSA programs – the St. Louis Treasury’s College Kids program and the Wabash-based Promise Indiana program – to promote college savings in low- to moderate-income populations. From an initial phase of exploratory research, we identified several important barriers to saving. Our approach assumes that low-income populations are capable of saving, but have unique challenges beyond a sheer lack of funds. For example, qualitative interviews with Kindergarten parents, conducted as part of our initial exploration, revealed that they did not think it was typical to start saving for college while their kids were in elementary school – they felt that college was too far away or were not yet certain their kids would go to college. Preliminary data also revealed that parents contributed to CSAs at the end of the school year in order to reach the deposit amount that would earn them a matched contribution. This evidence suggests that factors such as timing and social norms can be powerful in determining whether or not families will save for the future, regardless of the known benefits of saving.

In our first experiment with the College Kids program, we wanted to address the barrier of perceived distance to college with the hypothesis that, as college feels closer, parents will be more likely to start saving. To make college seem closer, we sent families variations of an end-of-year account statement. Half of the statements included a visualization showing them how close their child is to college.

We also tested if the way the message was sent home would impact how parents responded. To do this, we sent some of the statements home by mail and some through the child’s backpack, giving the kids a sticker to wear saying they wanted to go to college in the future.

The results of this first experiment were modest, yet promising; we found that families who saw this visual prime and received the statement via their child’s backpack were more likely to make deposits into their account. While these small tweaks seemed to nudge savings for some, only 65 families made deposits into their accounts out of the nearly 4,500 that were included in the test.

What should we make of these small effects? To start, there are many more barriers to address when it comes to college savings in low-income populations, including issues around limited trust in – and access to – financial institutions. In future studies, we plan to test stronger primes to make families feel more compelled to start saving for college as early as possible, for example, by suggesting a new social norm or creating the perception that time is moving more quickly, all while working to improve structural issues around access. We’ll also aim to make account use as automatic as possible by using behavioral strategies to help parents set up small, recurring deposits which will compound over time. While small program changes show initial promise in bridging the savings gap, our future research efforts will dig deeper into the roots of the problem to develop more impactful and scalable interventions.

¹Kim, Y., Sherraden, M., Huang, J., & Clancy, M. (2015). Child development accounts and parental educational expectations for young children: Early evidence from a statewide social experiment. Social Service Review, 89(1), 99–137.

²Singh, K., Beckley, P., Trivette, P., Keith, T. Z., Keith, P., & Anderson, E. (1995). The effects of four components of parental involvement on eighth-grade student achievement: Structural analysis of NELS-88 data. School Psychology Review 24(2), 299–317.

³Cook, T. D., Church, M. B., Ajanaku, S., Shadish, W. R., Kim, J. R., & Cohen. R. (1996). The development of occupational aspirations and expectations among inner city boys. Child Development, 67(6), 3368-3385.

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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.

A few weeks ago I received a text from an old college friend , asking for some interesting financial advice.  It read:

Her: Hey- do you know anything or any place I can look into about not paying federal taxes? Or ways around all that?

I was taken aback. While we at the lab do a lot of work to improve the financial lives of low and middle income families, committing a felony by avoiding federal income tax is not a strategy we often recommend.

When I received the message, I was taken aback. First, because I thought the expression “the only certainties in life are death and taxes” was pretty self explanatory. Second, and maybe more importantly, because my friend is a card carrying liberal New Yorker.

The idea that she would be against funding things like planned parenthood and the Environmental Protection Agency, which I know she is a pretty big fan of, was out of character to say the least. Then came the explanation:

Me: Ok, I think you are going to have to clarify. You for sure have to pay federal taxes somehow.

Her: Walls and pipelines and anything else DJT can come up with.Since he won’t be using it for science and research. Or education.

Looking back, I find this conversion particularly prescient. Just a few days later, Bloomberg published an article suggesting that a large number of Americans are either planning to pay their taxes quite late this year, or are just rolling the dice and not filing at all. The article sites Mr. Trump as a possible reason, along with plain old procrastination and confusion.

After a few entertaining exchanges about shell companies, opening bank accounts in Switzerland, and running a small yoga company for her roommate and dog at a loss, we landed on something a little more interesting.

It resulted in an entertaining “solution”: Retirement savings.

How Saving for Retirement Could be Used to Protest

Around 54.7% Americans pay some form of income tax the other 45% are disqualified because they don’t make enough.

The average federal income tax rate in America is around 15% for Americans who pay taxes (though this is an oversimplification. Our tax code is a mess).This means that the average American household could avoid $150 in taxes for every $1000 they contribute to a traditional IRA each year.

If every tax paying household in America put an additional $1,000 into a traditional IRA for the next 4 years, you would reduce government revenue by about $14,070,000,000 ($14 Billion). For comparison, we now know that Mexico will not be paying for the wall, and that President Trump has proposed a budget of $4-$6 billion to start construction.

The kicker for my liberal friends who feel that taxes usually go to productive government projects? Because you’d be contributing to a Traditional IRA, that money will still be taxed, just  much later when you withdraw it during retirement.. If they’re lucky, it will be put to use by a different administration whose core values are more in line with theirs. Conservatives on the other  hand get to pay less taxes. An easy win for them.

Getting America’s Retirement Savings Back on Track

Oh, and by the way, this whole calculation says nothing about how good this would be for the large number of Americans who have drastically under saved for retirement. We as a nation would collectively save about $9.3 Trillion for the future. $4,000 over 4 years would also represent an average increase of 25% in retirement savings for Americans under 30 and a 6% increase for the Median household in America. At a reasonable rate of growth, that represents a full year of retirement for the average millennial.

Additionally, A grassroots effort to protest via retirement savings also does little to nothing to help the 36% of Americans who have under $500 in savings prepare for retirement. These folks are presumably among the 43% of Americans who are not earning enough to be be taxed, and therefore also are not earning enough to save for retirement.

However, the current administration isn’t doing much to help them either, so for now it is up to us to find other ways to help them save for the long term. Perhaps we can start by framing their wages in annual terms, instead of as hourly wages to help them think long term. You can learn more about how creating a long term mindset can help people save for retirement here.

The post Could Retirement Savings Be a New Form of Political Protest? appeared first on Center for Advanced Hindsight.

Would you like to spend less money eating out and more money seeing the world?  Maybe a trip to a tropical beach or weekend getaway with friends or family?  If you’re like most people, the answer is Yes!  Exactly how much of a yes, though, may have a lot to do with your age.

In a collaboration between our startup, MoneyComb, and Dan Ariely’s Center for Advanced Hindsight at Duke University, a recent survey was conducted on spending habits and desires.[1]  We investigated how people feel about their spending across 9 common discretionary categories: things like eating out, entertainment, travel, and shopping for clothes, home goods, and electronics.  Also included were recreational purchases like gym memberships, personal services like salons and spas, and digital services like cable bills.

Our hypothesis was most people would like to spend more on experiences and less on things.  The data, however, suggested people take a more nuanced view of these decisions.  For example, eating out is experiential and often social—two things that recent research suggests promote happiness.[2]  But far and away, it was eating out, along with digital services, which people felt they spend too much on.  On the other hand, where people wish they could spend more, did focus on experiences.  Three of the top four categories to spend more on were travel (1), personal services (3), and entertainment (4).  But number two on the list surprised us, home goods like furniture and décor.

We also found some interesting differences among generations.  Primarily we looked at Millennial adults aged 18-34 versus older adults.  It seems Millennials are much less happy with how they spend their dollars than Mom and Dad.  For example, Millennials, on average, wanted to cut their spending on eating out by a whopping 37% whereas older generations were looking for a more modest cut of about 13%.  Everyone wished they could travel more, with older adults wishing they could double the amount they currently spend on travel, but Millennials want that amount to almost triple as a relative percentage of their discretionary dollars.

In summary, a fairly clear picture emerged.  For the sake of simplicity, we combined our three shopping categories—clothes, electronics, and home goods—into one shopping bucket.  (Overall, the desire to reduce spending on clothes and electronics eclipsed the wish to increase on home goods.)  We also combined recreational and personal services into a category called Recharge.

The bottom line: We want to move a large chuck of eating out dollars to travel, from shopping to recharge, and from digital services to entertainment.

So how do we do that? Well, unfortunately, it’s not that easy.  But we’re trying our best to help.  We’re working on a new personal finance tool that helps people track their day to day purchases so their actual spending matches up better with their desired spending.  It’s called MoneyComb.  To give it a try, go to www.MyMoneyComb.com.

Health and finance startups: Like MoneyComb, you too can dive into BE research as a means of informing product development. The Startup Lab is accepting applications until July 3^rd. Apply now.

[1] Our survey was conducted in May 2016 with over 250 respondents nationwide. 53% were aged 18-34 (Millennials), 47% were older adults.  Gender breakdown was about 50/50 and income ranges were generally representative of the US population.

[2] See “Time, money, and happiness” by Cassie Mogilner and Michael Norton.  Available online at www.sciencedirect.com.

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You can find the original article here

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