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1) As part of their bonus, Unilever senior managers are encouraged to invest as much as 60 percent of their cash bonus back in Unilever shares. The Nudge blog hopes senior managers will choose not to.

2) “The true perversity of The Heart Attack Grill is that the same tactics that are supposed to scare people away from unhealthy food are actually encouraging them to buy it.”

3) Which government agencies will challenge citizens to come up with ideas? Which government agencies will put those ideas into action?

4) People who order food through this mobile app spend 25 percent more on their order than they do using a traditional menu. Credit card executives would have predicted something like this.

5) TIAA-CREF is sponsoring a contest looking for ideas to boost the U.S. savings rate. Grand prize: $50,000

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In thinking about how to apply mental accounting to public policy, George Loewenstein writes:

The process of mentally bucketing money in multiple accounts is often combined with earmarking the accounts for specific goals…While it seems like an inconsequential process, earmarking can have a dramatic effect on retirement saving. Cheema and Soman (2009) found that earmarking savings in an envelope labeled with a picture of a couple’s children nearly doubled the savings rate of very low income parents.

The results by Cheema and Soman could explain why some US financial institutions offer clients the opportunity to label college savings accounts with a child’s name. Saving becomes easier because the money is earmarked for the education of a specific child.

From a recent report on how behavioral economics and finance can improve retirement policies. Hat tip: Dan Goldstein.

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Reader Guillaume Remy points us to an interesting example of savings clubs in Northern France. Originally created as a way to help miners and textile workers save money even thought they didn’t live near banks, the clubs are now primarily places to build camaraderie and throw parties. The clubs are commonly organized around a local bar (an excellent place to nudge savings!). Members deposit money in a wooden box, which is kept by the tavern owner, who deposits them in an actual bank. The savings are returned at the end of the year with the interest earned used to throw a small party or organize a local trip.

As these clubs are rare in France, a newspaper recently described one here (the article is in French). More info is here.

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Automatic enrollment is an idea with broad support across various socioeconomic and political groups. Still, as anyone who has ever observed politics in action, widespread support is no guarantee of adoption. What messages about the benefits of automatic enrollment into a retirement account do people find most appealing? An AARP (Association of American Retired Persons) survey of adults conducted last year, prior to the Obama administration’s proposed nudges, offered respondents six potential reasons.

1) An automatic IRA is a way to help workers save for themselves with a transportable savings account.

2) The cost to all of us is more people don’t start saving for retirement.

3) The 50 million new American workers who will be encouraged to save.

4) Encouraging low-income workers to save.

5) The IRA is a simple and practical way to save.

6) Small businesses that can’t match employee contributions can still provide an attractive savings vehicle to their workers.

Of the options, a majority found the first two “very convincing.” The rest ranged from 33-47 percent.

The most persuasive message in support of the Auto IRA proposal focuses on the portability of the account and the idea that it “enables workers to help themselves.” Promoting personal responsibility is a persuasive message in support of the Auto IRA. Another strong message highlights the cost to all Americans in the future if we do not encourage people to save for retirement now.

The interesting takeaway for policymakers looking to construct popular financial savings legislation and then sell it to citizens is that the idea of automatic enrollment is complimented nicely by a separate idea that is still is part of the bigger theme of simplicity: Portability. What people appeared to tell this pollster was that they preferred the simplest of products: One account that goes with you to any job. Message to financial professionals: The 401k rollover process is cumbersome and annoying.

Again, automatic enrollment is popular whether these specific messages are attached to it. But if you’re looking to devise a law that people support today, and will result in a product they’re likely to support and use 10 years from now, portability should be part or your legislation.

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…for workers over age 22 in a new supplementary State retirement plan, if they aren’t participating in a better plan at their work. We’ll come back to what’s “better” in a minute. The choice architecture of the Irish plan is stronger than the plans used here in the U.S. and therefore bound to be more controversial. People who sign up get bonus payments from the government if they stay in for five years, and if someone opts-out, they are automatically re-enrolled again every two years. In other words, you have to keep opting out of the plan.

Over at the Geary Behavioural Economics Blog, Liam Delaney offers some excellent observations about the whole reform plan, which goes beyond automatic enrollment. Compared to the U.S., the plan is a generous one. One of its features is a 4 percent matching contribution that is split between an employer and the government. If a worker is in a plan that matches at higher levels–and therefore is “better”–that worker is not placed automatically in the State plan. But what if an employer’s “worse” plan currently matches at lower levels? asks Delaney.

The employer contributions aspects create strange incentives for employers. For example, a company with 100 workers earning 20-40k per year that currently has a pension scheme with 30 per cent take-up, could find themselves with an extra fifty thousand or so per year to pay in terms of staff costs. While the employer would be obliged under the current scheme to enroll people onto the pension plan, they would not be obliged to enthusiastically endorse this to their workers. The social interactions that take place in this regard are interesting to think about. In general, the employer response to a national automatic enrollment scheme where the employers are bearing a good chunk of the costs is an element not usually present in the US literature.

Addendum: Conversation about the new pension system here.

Addendum Too: 12 skeptical questions about the plan from Constantin Gurdgiev.

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Nudge blog reader Chris Peterson previously wondered why banks don’t let him practice mental accounting by visualizing his online checking account as separate accounts for rent, food, entertainment, etc. He calls this process, “Saving with Shoeboxes.” Banks might not be helping Peterson budget and save, but others pointed him to the software package Bucketwise. Peterson responds with a tale about leaving Bank of America, which makes holding multiple small checking accounts an expensive pain, and switching to ING.

ING Direct, it seems, allows you to open up to 25 savings accounts for free, with no fees or minimums. Plus, they have “Automatic Savings Plans”, so one could say (for example) “Transfer $100 from my paycheck to my ‘Holiday Savings’ fund every month.” Now, is this a perfect shoebox solution? Not at all. You still have to open several accounts, and you can’t easily allocate everyday expenditures within those accounts – you can only transfer money from “groceries” to “checking” to cover the expense.

Overall, though, Peterson says he’s be “very satisfied” so far. He tells the Nudge blog he’s trying to push banks to implement a full visual shoebox system and has contacted the MIT center for civic banking. If an online mental accounting feature is something you wish your bank offered, read Peterson’s letter to his bank and spread the word at yours.

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Anne Stuhldreher follows up on the results of Save to Win in the Washington Post.

More than 11,000 Michigan residents opened accounts through the contest, saving $8.6 million throughout 2009. People can open the accounts — they’re like certificates of deposit — with as little as $25. They need to keep their money in for at least a year and can make deposits as small as $1 as often as they like.

More than half of the participants said they hadn’t saved regularly before opening their accounts. About 60 percent admitted they played the lottery during the past six months. And 44 percent earned less than $40,000.

With banks acting like lotteries, maybe it’s time for lotteries to act like banks. For people who can’t give up the thrill of a scratch off game, state lotteries could sell a, say, $5 ticket where $4.50 would be sent to a bank account. Seven other Michigan credit unions have adopted the model. One manager explained that the lottery style bank account proved more successful than a short-term CD with a 10 percent interest rate!

“We were very surprised,” Hubbard said. “It’s a breathtaking penetration rate, especially for a new product and one focused on saving, since that’s something our members don’t do.”

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A study by four Ivy League economists—Dean Karlan of Yale, Sendhil Mullainathan and Margaret McConnell of Harvard, and Jonathan Zinman of Dartmouth—has shown that gentle text-based nagging can induce people to save more. As part of a study, they worked with banks in the emerging markets of Bolivia, Peru, and the Philippines. When people opened accounts and encouraged to commit to saving certain amounts, the banks randomly assigned some customers to receive reminders via text. Some notes reminded customers that they had focused on a particular goal, others reminded savers that there were incentives for saving (like higher interest rates), and some did both. The conclusion: “Individuals who received monthly reminders saved 6 percent more than individuals who did not. They were also 3 percent more likely to reach their savings goals by the end of the savings program.” The most effective form of messaging was one that reminded people both that they needed to save in order to reach a personal goal and that there were incentives for doing so. Such nudges boosted savings by nearly 16 percent.

This paragraph comes from a Slate piece with the headline, “The Jewish Mother in Your Cell Phone.” The real question should be, what if, instead of your cell phone, your actual mother, or your father for that matter, reminded you to save money once a month? Which nagging would beef up your bank account better? As research into boosting savings progresses, more of these nudges will have to be put head-to-head.

This sort of process has occurred over the last decade in political research on one seminal question: How do you get people to vote? For instance, in-person contacts increase voting more than direct mailings, which work better than phone calls. Publicizing one’s voting history (or that of their neighbors) boosts voting more than a generic reminder to fulfill your civic duty.

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Three senators have proposed a law that would require employers to tell their 401(k) participants how much money they are projected to earn each month based on the current balance of their account. Since most Americans don’t have much money in their 401(k) accounts, the disclosure would quickly highlight how much more they need to save. For instance, the average 401(k) account produces just $225 a month in income. From there, one of two things could happen.

Best case, they increase the amount they contribute to their 401(k), which presently averages 7%. Or, worst case, they increase the amount they invest in stocks, thus increasing their exposure to market risk. At the moment, the evidence seems to suggest that many workers don’t have a clue about how to invest the money in their 401(k)s.

For older workers who need their retirement nest eggs soon, the worst case scenario is potentially devastating. Full story at Marketwatch.

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Washington State finance professor John Nofsinger has read Nudge and is posting choice architecture examples at Psychology Today. He plugs savings programs that come with a gambling twist (ie. people who commit to saving a little bit of money are eligible for some serious cash and prizes in a lottery). In a previous post on one of these programs, one blog reader brought up Irish Prize Bonds. Nofsinger gives more details on a similar U.K. offering, Premium Bonds.

These programs have existed for centuries internationally. The longest running program may be the Premium Bond in Britain, started in 1956. The bonds require a £100 minimum purchase and make the purchaser eligible for monthly prize drawings. The excitement of gambling is maintained as more than 1 million prizes are given at each drawing. Prizes range from two £1 million prizes to more than a million £50 prizes. Over £30 billion of savings are held in Premium Bonds by one quarter of British households. Programs in Central and South America give away cars and equivalent prizes daily with larger lotteries drawn monthly. The Million-a-Month-Account program was started by First National Bank in South Africa in 2005.

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