Retirement’s future could rest with digital tools
Could a chatbot solve the retirement savings problem?
Well, not by itself.
But according to a paper by behavioral economist Schlomo Benartzi, a Professor of Behavioral Decision Making at UCLA Anderson School of Management and a senior academic advisor to the Voya Institute for Behavioral Finance Innovation, when a chatbot and text messages, as well as targeted e-mails, are combined with the principles of behavioral economics—specifically, nudging people into certain actions—the effects on retirement savings can be substantial.
In a December Harvard Business Review article, Benartzi says that, in light of the successes of the Save More Tomorrow program “that used nudges to help people make better decisions about their long-term financial future,” such as encouraging people to gradually boost their savings rate over time, he became interested in “digital nudging, which seeks to identify online designs that help people make smarter choices.”
Digital nudging has two advantages over conventional methods of encouraging people to change their behavior.
First, research can be conducted far faster in the digital space, which helps to identify successful strategies more quickly.
And second, the scale of a digital program can be immense, which results in far more people being affected in a cost-effective manner.
In their research, Benartzi and his colleagues found that e-mails had a far greater effect, at a much lower cost, than other programs designed to help people tackle their finances. From that, Benartzi judges that “even better results” could come from “using text messaging, personalized videos and chatbots.”
They also looked at robo-savings apps as a means of counteracting how easy it is to spend money online via one-click checkouts and apps like Apple Pay by helping people to save money just as easily.
One method that sought to increase enrollment in an auto-deposit program posed the question to users of whether they’d prefer to save $5 per day, $35 per week or $150 per month.
While just 7 percent opted to save $150 per month, which is essentially the same as $5 per day or $35 per week, a full 30 percent opted for the smaller-sounding, easier-sounding $5 per day.
Then there’s mobile feedback. Testing a mobile app that provides a dashboard showing people “how much you spend at clothing stores and the percentage of income that’s devoted to paying off the mortgage” while they’re actually out spending money “turned out to have a huge impact,” particularly on discretionary spending, “with the average user decreasing their monthly spending by 15.7 percent”—nearly all of which was discretionary spending, such as eating out.
Benartzi writes, “The results fit with recent government surveys, which find that the majority of consumers with access to their financial information on mobile phones check their balances before making large purchases. Of those who check, 50 percent decide not to buy an item because of the feedback.”
So as research progresses in both behavioral economics and tech tools that can help people better manage their money, retirement savings may come out a winner in the end.