FEATURE7 November 2017

BE360: helping improve everyone’s financial future

Behavioural science Finance News North America UK

Many of us tend to focus on today’s financial needs, and bury our heads in the sand when it comes to thinking about saving writes The Behavioural Architects’ Crawford Hollingworth and Liz Barker.

Retirement money_crop

Retirement, in particular, can seem such a long way off, while in the present there are so many pressing demands on our money: a new car, house maintenance and improvements, as well as annual holidays and even Christmas presents for the children.

Compounding this problem is our tendency to hope for the best and optimistically believe we’ll earn more money in the future, or even that ‘it’ll all work out in the end’. We also struggle to imagine our future selves – an effect known as the ‘end of history illusion’ – meaning that we may find it difficult to plan because we don’t feel we will change or have different needs from the ones we have now.

On top of this, financial products can be complex, and people struggle to make sense of them, often losing concentration and switching off. The latest statement is consigned to a pile of unread notifications and emails are left unopened.

Why the ‘Autopilot’ approach may not be enough

While some ‘autopilot’ initiatives such as auto-enrolment[ 1 ] and auto-escalation[ 2 ] in retirement savings – inspired by insights from behavioural science – have certainly had huge impacts and made leaps forward in basic participation in savings schemes, they ask nothing from individuals in terms of engagement.

This type of approach leverages a System 1 approach – when behaviour change is achieved by relying on our tendency towards inertia and settling for the status quo, and for choices and selections that require the least effort in both thought and action on our part.

In this scenario, an individual could be auto-enrolled into a pension in their current job, accept the default fund(s) and the default contribution rate (currently 2% in the UK, but increasing over time to an eventual 8% in 2019 ), but have very little understanding or engagement with their pension.

Individuals might not even remember they are enrolled in a pension plan, let alone think about how to optimise it. And not consciously choosing to do something can result in a lower level of commitment and responsibility or ownership.

In the US, this lack of engagement also means people are cashing out their retirement savings, not understanding how vital it is to keep these savings untouched. One in four households with a defined contribution fund cashes-out its savings, meaning that as much as $70 billion is withdrawn from 401(k)s on an annual basis.[ 3 ]

Jonathan Rowson of the RSA says: “Nudge changes the environment in such a way that people change their behaviour, but it doesn’t change people at any deeper level in terms of attitudes, values, motivations.” He and other social scientists still see the need for a more conscious, thoughtful engagement, which aims to “foster the transformative learning we need to make significant and enduring changes to our behaviour.”[ 4 ]

Some behavioural scientists and practitioners have been looking at ways to build greater and more sustained financial engagement with employees, so that they become more capable of managing their money for the future. This approach draws more on employees’ ‘System 2’ – their logical, rational thinking style – looking at how we might get them to consciously reflect on how they should best save for their future.

In this article, we discuss four simple, yet effective approaches that are building greater engagement with our finances, so that we are sufficiently prepared for the future. They are just tiny tweaks in how and when information is presented, yet all of them show promise.

1. Keeping people’s attention by asking less of it

One seemingly counter-intuitive approach proposed by a financial company called Hellowallet may increase engagement by demanding less of people’s time and cognitive energy.

US-based Hellowallet is a relatively young company, which provides a web and mobile platform to Fortune 100 companies, bringing together each employee’s financial accounts into one place for them to access. It also provides personalised financial guidance for better money management and to increase financial wellbeing.

Using the Hellowallet platform, it recently tested this theory in a series of randomised controlled trials with thousands of its clients’ employees.

Its standard approach had been to send platform-users a weekly Friday email containing a summary of their finances, aimed at encouraging them to control their spending, build their financial literacy, begin to understand compound interest, build a budget and set up regular savings debits.[ 5 ] Yet, it wondered whether it might increase engagement if it expected less of users and contacted them less frequently. To test this hypothesis, one group of employees registered to use the platform received the summary email every other week

It found that asking for employees’ attention on a less frequent basis resulted in greater engagement over the long term. After 90 days, the open rate for bi-monthly emails was 65% compared with 58% for weekly emails, a seven percentage point lift. Click-through rates also increased from 23% to 29%. Its strategy of not inundating and overwhelming employees with communications paid off.

Effective communication can also be about finding a good moment to engage with people. Talk to them when you might get their undivided attention and fit learning around the time that people have. Samsung has been working with Nudge Global – a financial education company – to improve financial wellness among their employees. One of their initiatives has been ‘Learn in the loo’ – putting simple financial education content in the staff toilets where there is a greater opportunity to get someone’s attention.[ 6 ]

2. Increasing cognitive ease to increase engagement

Sometimes, it’s not the frequency of information, but the sheer amount of it that can create a barrier to action. LV= and The Behavioural Insights Team (BIT) recently tested an approach focused on getting people’s attention by including a simple one-page, ‘go-to’ summary inside a large pack of information.

In the UK, those approaching retirement are no longer required to purchase an annuity, but instead can take out a cash lump sum. These are complex choices and experts recommend that people seek financial guidance before making any decision.

People in the UK can access free and impartial guidance via the UK’s Pension Wise service. Those approaching retirement age are notified of the Pension Wise service through a signposting letter included in the standard wake-up information pack. However, these ‘wake-up’ packs often contain more than 100 pages of dense, complex information, leading most retirees to feel overwhelmed and switch off rather than ‘wake up’.

To address this, the BIT consolidated the vital information in LV=’s pack into a single A4 sheet (see image below), reducing the total amount of information customers must digest, and making the most important information more salient, including making clear the next steps to take.

The initiative had a significant impact, lifting the number of visits to the Pension Wise website from around 1% to almost 11%, and increasing the proportion of customer calls to the service, from 5% to more than 8%.[ 7 ] While response rates ideally need to be much higher than this, it’s a promising start.

The Pension Passport used in the LV+trial.

Similarly, The Behavioural Architects has been working with a large financial services provider to help it optimise retirement communications. We’ve helped it develop an in-house framework for designing customer comms using behavioural science to drive action, while also steering customers to make choices that are in their own best interests.

3. Change the frame to change a mindset

While it’s tough enough managing your money as an employee, the self-employed have an even harder deal. Income can be unpredictable, careful tax planning is required, and retirement savings and health insurance need to be organised and planned for. Many do not save enough money for either. In the US, 10% of US workers are self-employed and in the UK the figure is 15%.                   

To help solve this problem, Dan Ariely’s Common Cents Lab at Duke University partnered with Payable to encourage more self-employed people to open a retirement savings account. Payable helps self-employed people get paid faster and more efficiently by making invoicing and work-tracking simple.

It used a simple A/B email to test if displaying someone’s income in annual terms, instead of ‘per job’ would increase their likelihood of signing up for a retirement account. This reframed people’s income to encourage a long-term mindset and increased the number of people who clicked through to start saving for retirement with a third-party by 14.5%. Encouragingly, most of the 1099 people signing up indicated that they wanted to save 12% to 20% of their income.[ 8 ]

Testing reframing income with Payable. Source: Common Cents Lab, Duke University.

4. Reframing information to increase action

The Behavioural Architects has also drawn on the technique of reframing pensions information to make it more meaningful and encourage action. We worked with a large financial services company to redesign the annual statement for retirement savings accounts. These are typically very dry, complex and poorly presented documents. Merryn Somerset Webb, editor of the personal finance publication Moneyweek recently said: “I used to have a workplace pension with Standard Life. It was awful. I got a letter every year with a ‘plan summary’ on it. It told me last year’s value, this year’s value and the amount added into my plan over the year.”[ 9 ]

For most people, these numbers are meaningless and can lead to what behavioural scientists call ‘illusion of wealth’ effects – thinking we have saved more than we really have prompted by seeing the value of the lump sum saved so far. A lump sum of £100,000 can seem like a lot to someone mid-career, earning an average salary, and may encourage them to rest on their laurels, but it is nowhere near enough to fund a retirement.

Research carried out by behavioural scientists Shlomo Benartzi, Hal Hershfield and Dan Goldstein tested ways to counter this effect in a small field experiment run in conjunction with a financial advisory firm. Financial advisers phoned 139 of their clients and told them how much money they had saved – either as a lump sum or in terms of what that sum would roughly equate to as their projected monthly income in retirement. They then asked them if they would like to change their current savings rate and if so, what that new rate would be. Thirty-six per cent of people who were quoted the monthly income figure opted to increase their savings, compared to only 21% of the lump sum group. In addition, those quoted the monthly income figure increased their savings rate by more than those quoted the lump sum figure.[ 10 ]

Reframing a lump sum into more meaningful numbers, such as monthly income or annual income, can prompt people to increase the amount they are saving. We automatically compare such income figures to our current salary which could help us to realise we need to save more if we want to maintain a similar standard of living.

Keeping this in mind, we worked with our client to redesign the front sheet of its annual statement so that the lump sum saved so far was also converted into a projected annual retirement income. For example, rather than a projected lump sum of £200,000 based on current savings and rate of future saving, we displayed it as a £13,000 per annum income in retirement. Enough not to starve, but hardly likely to provide a comfortable standard of living for most. This is the kind of shock trigger that might be necessary to prompt increased engagement with retirement planning.

This and other changes we recommended led our client to be rated in first place (with a score of 7.6 / 10 from an earlier score of 5.8 ) by an independent ratings agency for pensions information provision.

Although initiatives such as auto-enrolment and auto-escalation are helping to get people saving more towards their retirement, they only solve part of the problem. Initiatives like the ones we’ve outlined above, which help to increase engagement and understanding of savings and investments are essential. 


[ 1 ] Auto-enrolment automatically opts employees in to a workplace pension, whilst allowing them to opt out if they choose to.

[ 2 ] Auto-escalation means an employee’s contribution level to their pension is automatically increased at regular intervals, until it reaches a preset maximum.

[ 3 ] http://business.time.com/2013/01/23/cash-leaking-out-of-401k-plans-at-alarming-rate/http://info.hellowallet.com/rs/hellowallet/images/HelloWallet_The%20RetirementBreachInDefinedContributionPlans.pdf

[ 4 ] https://www.thersa.org/globalassets/pdfs/reports/rsa-transforming-behaviour-change.pdf

[ 5 ] Wendel, S., ‘How to keep users engaged with their finances’ RAND Corporation Behavioral Finance Forum,

[ 6 ] http://www.nudge-global.com/2017/07/26/webinar-improving-financial-wellness-data-driven-approach/

[ 7 ] The Behavioural Insights Team ‘Improving engagement with pension decisions: The results from three randomised controlled trials’ October 2017


[ 8 ] Common Cents Lab End of Year Report 2016 http://advanced-hindsight.com/wp-content/uploads/2017/04/Common-Cents-Lab-End-Of-Year-Report-2016_April_5.pdf

[ 9 ] Merryn Somerset Webb “Workplace pensions shouldn’t be this much hard work” 22nd Sept, 2017 Financial Times, https://www.ft.com/content/433691f6-9ee9-11e7-9a86-4d5a475ba4c5

[ 10 ] Goldstein, D.G., Hershfield, H.E., Benartzi, S. “The Illusion of Wealth and its Reversal” 2014