Using an annual bonus as a savings moment

Background

Finding ways to build a cushion of short-term savings is a critical part of our financial well-being, but making ongoing, regular contributions to savings is difficult to do. In addition to creating a system that makes saving more automatic, many researchers have pointed to savings “moments” as important opportunities for people to set aside savings.

Tax time is the most common “moment” where people may feel better able to save, but a tax refund is not the only such opportunity. For example, receiving an annual bonus at work is another chance to build a cushion of savings. We partnered with Credit Human Federal Credit Union, a credit union based in Texas, to explore how we might take advantage of employer bonuses to help employees save.

Key Insights

There are many reasons why someone might not save some or all of their annual bonus. To understand how these barriers affect saving and to look for opportunities to nudge employees to save, we conducted interviews with employees and evaluated the current process employees go through in order to receive the bonus. Three barriers stood out as especially relevant:

• There was no prompt for Credit Human employees to save their bonus. Even if employees want to save part of their bonus, when it actually arrives, an employee might be faced with short-term needs and temptations and forget about their previous intention.

• There is no mechanism for Credit Human Employees to save their bonus. If a Credit Human employee was inclined to save their bonus, they would need to take several steps and make several decisions in order to do so.

• Employees may treat their bonus as different from their normal income, which research suggests makes saving windfalls particularly challenging.

Experiment

We worked with Credit Human to send eligible employees an email that invited the employee to pre-commit to save their bonus before the bonus was actually received. The prompt also gave the employees a deadline and a short time-frame for acting to avoid procrastination. The actual savings mechanism that was developed was a partially pre-populated online form.

Employees randomly received an invitation email. There were two versions of the email testing the messenger effect, or the idea that who delivers the message impacts the response. In both versions, Credit Human noted that there was hard work behind the effort to make it easy for employees to start saving.

Results

Only about 4% of employees enrolled in the Bonus Savings Program, and neither version of the email significantly changed enrollment in the program.

Of those who decided to save some of their bonus, about 36% opted to save all of their bonus. 21% saved 50% of their bonus and a little more than 17% saved at least 10%. Employees who signed up to save their bonus were sent a survey about the experience and the response was positive. Interestingly, some employees requested more support from Credit Human for savings. This suggests that there are likely more opportunities to explore bonuses not just as an employee retention tool but as another “moment” to encourage savings and improve employee financial health.