Recently I spoke to the Workplace Savings Conference, and I would like to share some of my thoughts.
In preparing for this session, I did a quick straw-poll of colleagues asking “how do you feel that a group of industry experts are talking about ways to influence your buying behaviour?” The responses I got varied from suspicion (“are my needs being considered?”), through apathy (“kind of what I expect to be happening”), to “it depends on the product and whether it’s something I like”. For example, people were strongly against tobacco manufacturers talking about ways to influence them, but accepting of investment companies doing the same thing.
This straw poll helped me understand the question I really wanted to be asking is “what do New Zealand consumers want and expect, and how can we help meet their needs?”
Two people are alike in all ways except that one purchases life insurance and the other doesn’t. What’s the difference? This is the question we wanted to understand. And I think that we can just as easily say “KiwiSaver” as insurance.
The answer from research was “decisions are not made in isolation”. Factors influencing buying behaviour include social (who are my peer group and what do they do) and cultural context. One of the key things we learnt was that without knowing the context of a person’s behaviour, we can’t hope to understand how to influence them.
Taking a specific example, we looked closely at ‘millennials’, and the research identified a real tension between two opposing pressures. The present-oriented “you only live once” mindset and the future-focussed “don’t fx!# it up” approach. A challenge for both insurance and savings is how to meet the needs of those consumers who are living in the present-moment, not too concerned about the future.
With regard to the social influences, we learnt that peer groups, teachers, workmates, mentors or doctors have the potential to trigger and guide future-oriented thoughts and actions. The ability to act on those triggers is greatly heightened if some capability has been absorbed through parents or is accessible via parents and partners.
So if we are to use nudge techniques, then focussing on social influences – parents, teachers, doctors, peer groups – presents an opportunity not fully tapped.
Which turns us to “nudge” techniques and behavioural economics. If you’ve read Richard Thaler’s best-selling book “Nudge”, you’ll know that he talks about how small interventions in the environment or incentives can encourage people to make better decisions. I’ll come back to that word “better” in a minute.
So, with KiwiSaver, New Zealand already uses a nudge technique – automatic enrolment. We give new employees the option to opt-out, but it’s far easier to stay opted-in. I thought you’d be interested in a couple of other nudge techniques that have had success in the area of savings. The first is a well-known example from the USA where a company used default savings rates to increase employee saving. Average savings rates for participants increased from 3.5% to 13.6% over 40 months. In another example, the National Bureau of Economic Research conducted field experiments and found that text message reminders to increase savings worked best when goal-specific rather than generic. Also on the topic of text reminders, tests have found that people are more likely to make a payment on an overdue fine if they receive a text containing their name.
Finally, I’ll come back to that word “better”, and a question “how can we know what is better for someone without knowing their context and what they need?”. As the Financial Times noted, Richard Thaler, when signing his book “Nudge” always writes “nudge for good” next to his name.
Presented to Workplace Savings New Zealand Annual Conference, 7 November 2016
“Nudge: Improving decisions about health, wealth and happiness” by Richard H. Thaler and Cass R. Sunstein