Press release: Common Cents Report: Hacking Human Behavior to Improve Financial Health
Common Cents, a financial research lab at Duke University supported by MetLife Foundation, today unveiled its 2017 Annual Report. The report details behavioral interventions aimed at improving financial health for low- to moderate-income people with more than 27 organizations over the course of 2017, including startups, credit unions, non-profits, and local governments.
The report constitutes one of the most significant applications of behavioral economics of its kind, documenting outcomes and lessons from 38 different projects and experiments. The work is part of a three-year effort supported by MetLife Foundation to improve the financial well-being of low-to-moderate income (LMI) households in America.
“The work of Common Cents clearly demonstrates that behavioral science can meaningfully help people save more and spend less,” said Evelyn Stark, Assistant Vice President of MetLife Foundation.
“Everyone aims to be financially stable, but we know that not everyone has the right decision-making environment to accomplish this goal,” said Common Cents founder, Behavioral Economics Professor, and New York Times bestselling author Dan Ariely. “Our work shows that by optimizing the environment, it is possible to build products and services that improve financial health, all while making the business more economically viable.”
Despite historic peaks for the S&P 500, low unemployment, and a decreasing poverty rate in 2017, the personal savings rate for Americans is at its lowest point in five years and credit card debt exceeded $1 trillion for the first time since the Great Recession. Set against this backdrop, Common Cents set out to help organizations build products and services that leverage basic human behaviors to increase income and savings, improve cash flow management, and decrease expenses and debt.
Examples of the lab’s findings and impact from the 2017 report include:
- Default Retirement Saving Outside of Work:
Common Cents partnered with Self-Help Credit Union to increase retirement savings outside of an employer-sponsored program. Common Cents automatically opened a retirement savings account for new checking account holders who weren’t already saving for retirement. Anytime members received a deposit into their checking account, a portion would also be placed into this savings account. In the pilot, roughly 38% of eligible members decided to enroll in the retirement savings program, and over 30% of members have kept their account active.
- Increase Saving by Appealing to Round Number Preferences:
In partnership with Latino Community Credit Union, Common Cents defaulted borrowers into a program that rounded up loan payments to the nearest $25 or $50. The extra payment went to a savings account that the borrowers could access anytime. The program earned a 26% enrollment rate. By reframing the opt-out box to highlight the potential missed savings, this enrollment rate increased to 38%.
- Reduce Food Spending Through Peer Comparisons:
In an analysis of over 30,000 transactions, Common Cents found that eating out was one of Americans’ most regretted expenses. To help reduce these costs, Common Cents partnered with Arizona Federal Credit Union to show members how much they spent eating out compared to other members. Correlational evidence shows that these peer group insights might help to curb food spending in the short-term.
- Use Natural Milestones as Motivations:
Common Cents partnered with Silvernest, a roommate matching service, to help older adults earn extra money by renting out a spare room. People are motivated to make a change when there is a natural milestone, like the New Year or turning 65. Utilizing this intrinsic motivation, click-through rates on Silvernest’s online ads doubled when they highlighted to 64 year olds that they would soon be turning 65.
Since its launch in 2016, Common Cents has conducted 57 pilots and experiments involving over 1.7 million individuals. To date, our work has led to $11.5 million in increased earnings, savings, and expense reductions. At scale, we expect our impact to grow to $113 million.
For detailed results of every 2017 intervention, to review a copy of the Annual Report, or to read more about participating partners please visit: http://new.advanced-hindsight.com/annual-report/.
Photo courtesy of Isaías Campbell.