In the United States, the lowest wage earners have limited access to retirement savings programs. According to the Bureau of Labor Statistics, of the lowest 10% of U.S. wage earners, only 34% had access to, and only 15% were participating in, employer sponsored retirement savings programs. These statistics indicate low-income individuals are having a particularly difficult time saving for retirement.

We partnered with Self-Help Credit Union (SHCU) to help its members that are not currently saving for retirement. SHCU is a financial service provider that is focused on community development and the improvement of the financial well-being of its members. Many SHCU members are not currently saving for retirement.

Therefore, SHCU decided to create a new Retirement Savings Account (RSA) that serves as a substitute for traditional employer-based retirement plans. The RSA is funded using automatic contributions from checking deposits and contains a free $100 for all members who do not close the account or withdraw from it in the first year.

We partnered with SHCU to test the efficacy of the RSAs at a branch in Western North Carolina.

Behavioral Diagnosis and Key Insights

Qualitative and quantitative analyses represented the foundation for our behavioral diagnosis. We conducted a series of eight in-depth interviews with SHCU staff, members, and one non-member. Additionally, we consulted relevant academic literature on defaults and reviewed historical savings trends for SHCU members. Online surveys were also administered to measure preferences for product features such as product name, automatic contribution percentage, and withdrawal penalties. The behavioral diagnosis led to two key insights.

1. Many members lack or have limited plans for retirement. In our qualitative interviews, many members indicated that they suffered from a lack of planning or had no plans for retirement whatsoever. Members did not have specific retirement goals, and many were not currently saving for their
2. Many members valued the ease and simplicity of automatic savings. The members were in favor of making the retirement savings process as easy as possible. The RSA allows members to save for retirement without changing any of their financial habits. After the RSA is established, savings will accumulate effortlessly and without much

Experiment

We designed a simple experiment to test which version of the RSA prototype would lead to the greatest uptake and retirement savings for SHCU members. Defaults have been researched extensively and their impact on behavior change has been replicated in many studies. Therefore, we decided to forgo a no-contact control and, instead, test two different types of defaults.

Participants were assigned to one of two conditions: simple default and defaults with anchors. Half of the participants were presented with the simple default condition: an automatic transfer rate of 3% was set (3% of all checking deposits was transferred to the participant’s RSA).

The other half of participants were presented with the defaults with anchors condition: participants were offered automatic transfer rates of 10%, 6%, or 3%. In the defaults with anchors condition, participants were able to select their desired automatic transfer rate.

All study participants were not currently saving for retirement and had just opened a new checking account with SHCU.

Results

The RSA intervention was launched in June 2017 and data collection is ongoing. We are tracking two key measures: RSA uptake and total retirement savings.

To date, across both conditions, 38% of eligible SHCU members enrolled and 30% of eligible members have kept their RSAs active. Currently, RSA participants have saved a total of $11,439.03 or approximately $272.36 per member. Active RSA participants now have more retirement accounts (one) than half of all U.S. families in the South.

We will publish final results in Q2 2018.