Learning from the lab: Exploring experiences and attitudes about savings goals and methods

Background

Previous research into automatic savings has shown it to be an effective tool for saving. When partnering with Chime to have clients automatically save 10% of their direct deposits, those that used the feature saved an average of $200 per month. This is similar to widespread automatic savings systems such as 401k savings accounts or income tax withdrawals that result in substantial tax refunds later in the year. Our previous research with Narmi illustrated a growing demand in some form of automated savings within personal banking. We found that 59% of respondents reported interest in signing up to use an automatic funding mechanism. Learning more about people’s attitudes and willingness to use different funding mechanisms would help define a direction for an intervention that leads to more effective savings behavior. Simplifying the effort it takes to add money to one’s savings account is only half the battle. Keeping money in an account until it is ready to be used is an issue not yet solved by banks and FinTechs.

While retirement accounts have penalties and restrictions for early withdrawals, there are not similar restrictions for non-retirement savings. The use of pre-commitment devices to prevent the unnecessary withdrawal of savings has been successful for some brick-and-mortar banks, as demonstrated in research by Ashraf, Karlan, and Yin. How willing are people to commit to using similar features in digital banking? Do these attitudes differ depending on the type of goal they are saving for? With these questions in mind, we designed a survey to begin to explore attitudes towards different automatic funding mechanisms and precommitment devices.

Key Insights

This survey was conducted as part of our work with Urban FT (see page 156 of the 2020 Annual Report). We wanted to explore respondents’ attitudes towards four funding mechanisms:

• Round-up: Every time you make a purchase on your card, your purchase is rounded up to the nearest dollar, and the change is transferred from your checking account to your savings account.

• Automatic transfers: You can choose a set amount to transfer from checking to savings on a regular basis, such as weekly or on a certain day each month. Your bank will make these transfers automatically for you without any further action on your part.

• Paycheck splitting: Choose a percentage of your paychecks to automatically transfer to savings, and your bank will transfer it on your behalf the moment your direct deposit hits your account.

• Account sweep: You choose a minimum amount you want to keep in your checking account. On a regular cadence that you designate, your bank will transfer anything above that amount over to a savings account on your behalf.

We also wanted to understand whether respondents were interested in pre-commitment devices – would they recognize their susceptibility to temptation, and be willing to tie their own hands to better meet their savings goals? We explored attitudes towards three pre-commitment devices:

• Accountability buddy: You choose an accountability buddy who is notified whenever you withdraw money from your savings account.

• Target amount: Your savings account does not allow you to withdraw the money until you reach a target amount that you set for yourself.

• Target date: Your savings account does not allow you to withdraw the money until you reach a target date that you set for yourself.

We outlined three testable hypotheses about participants’ perceptions of funding mechanisms and pre-commitment devices:

1. Participants will select round-up savings as the most interesting funding mechanism.

2. Participants will rate paycheck splitting as the mechanism that will help them save the most, but only if they are employed.

3. Participants will be more likely to enroll in the pre-commitment savings account feature they are shown for more serious goals (i.e., buy a house, childcare, education, emergency fund, new car, retirement), and less likely to enroll for less serious goals (entertainment /hobbies, vacation).

4. Participants will be most likely to enroll in the pre-commitment savings account feature they are shown when saving for an emergency fund.

Experiment

The experiment was implemented as a Qualtrics survey delivered through the Positly platform to 1,247 online participants.

We began by asking participants about their own savings motivations and barriers, then randomly presented them with one of the four funding mechanisms outlined above (i.e., round-up, automatic transfers, paycheck splitting, or account sweep) and asked about their interest in the mechanism, how much they think they could save with it, and how long they think a friend might stay enrolled. Then we presented each participant with all four of the funding mechanisms to compare against each other and asked which one they would be interested in using, which would be the easiest to save with, which would help them save the most money, and which they would recommend to others. We then randomized respondents to read about one of three savings pre-commitment devices (i.e., target date, target amount, accountability buddy) and asked how likely they would be to enroll in the feature, as well as what goals they would most likely use the feature for. Finally, we collected demographics.

Results

The results were based on 987 responses. There were 260 additional respondents who were excluded from the dataset because of suspicious free text responses.

When respondents were asked to rate their interest in their assigned funding mechanism, we saw a steady increase in interest across all mechanisms. However, interest in round-up savings peaks at “Extremely interested” whereas the other three mechanisms see a significant drop-off between “Moderately interested” and “Extremely interested”. There is no statistically significant difference between the proportions of respondents that chose “Extremely interested” for their assigned mechanism (p = 0.3253).

We found that the round-up funding mechanism was the most interesting to participants (p < 0.00001). Additionally, participants found it to be the mechanism that would be the easiest to save with and the most recommendable. However, it was ranked least helpful in saving the most money. Paycheck splitting was viewed to be the most effective at saving the most money. This attitude did not depend on employment status.

We found that a majority of users would not consider using a pre-commitment device. When asked about how their willingness to use a pre-commitment device differed based on the goal they were saving for, respondents were most willing to enroll for more serious goals (e.g., emergency, retirement, car, housing).

Overall, accountability buddy was the least popular pre-commitment device. A review of free text responses showed concern regarding privacy when it came to the accountability buddy feature. Regarding target amount and target date, respondents were most concerned about being unable to access money in an emergency. Considering a key component of emergency savings is liquidity, this makes sense. Paradoxically, people reported being most willing to use a pre-commitment device for emergency savings.

This study demonstrated how people view the essential features of funding mechanisms as well as their willingness to use pre-commitment devices to limit unnecessary use of their saved money. The key lessons we learned in the study are:

• Respondents found round-ups to be the most interesting funding mechanism, yet were aware of its shortcomings in helping them save effectively.

• Aligning automatic savings with income (e.g., paycheck splitting) was believed to be most effective for saving by respondents.

• People were hesitant to limit their access to saved money with a pre-commitment device. Counterintuitively, participants reported that they would be most willing to lock away savings for an emergency fund, even though the unpredictable nature of an emergency could make this problematic.