Temporal Reframing and Savings: A Field Experiment
Research Retrieved: October 2018
Retrieve the paper from the SSRN.
Past research has found different ways in which those who have access to employer-related retirement plans, such as 401(k)s, may be motivated to enroll. However, the labor market is increasingly made up of freelancers, who for example work for Uber or Amazon’s Mechanical Turk and are responsible for their own retirement plans. However, savings rates remain low, especially at the lower end of the income spectrum. The authors conducted a field study in collaboration with 8,391 new users of the financial technology platform Acorns. The study provides evidence that framing savings in smaller fractions (for example $5 per day rather than $150 per month) increases consumer enrollments in savings plans. Further, framing deposits in smaller fractions eliminated the participation gap between high- and low-income consumers.
Does framing savings in larger or smaller fractions (for example $5 per day versus $150 per month) affect willingness to enroll in a savings plan? The authors investigated this issue in a field experiment in collaboration with 8,391 new users of the financial technology platform Acorns. It is hypothesized that recurring deposits programs that are presented in smaller fractions motivate consumers to enroll in savings plans.
- Framing savings in smaller fractions increases enrollment rates in savings plans: Take-up rates were four times higher when deposits were framed in daily terms ($5 per day), as compared to monthly terms ($150 per month) and three times higher, as compared to weekly terms ($35 per week).
- This finding is robust when lower overall amounts are used: Take-up rates were twice as high when deposits were framed as $7 per week, as compared to $30 per month.
- In the short-run, dropout rates are higher for those presented with lower, more frequent savings rates, while this effect disappears in the long-run: After one month, 25% in the daily framing condition had dropped out of the savings plan, while only 15% had dropped out in the monthly and weekly conditions. However, even with the higher dropout rate, more participants in the daily amount condition were enrolled after the first month. In the subsequent two months, retention stayed the same across conditions. In the replication study ($7 per week versus $30 per month), retention was indifferent between conditions.
- Framing deposits in smaller fractions eliminates the participation gap between high- and low-income consumers: In the monthly framing, three times as many participants from the highest, as compared to the lowest income bracket enrolled in the program. This difference disappeared in the daily framing.
Meaning for Practice
An increasing number of workers in the current labor market is now working as freelancers, for example for Uber or Amazon’s Mechanical Turk and hence are no longer eligible for employer-related retirement plans, such as 401(k)s. On average, these freelancers do not sufficiently save for retirement, especially at the lower end of the income spectrum, and hence require assistance. This study provides new insights into how to solve this issue by demonstrating that temporal reframing has the capability to boost savings. Framing savings rates as smaller fractions seems to be less psychologically painful and increases participation in recurring deposits programs across the income spectrum.