How to Help Motivate People to Save more Now for Retirement. The societal shift from defined benefit (DB) to defined contribution (DC) plans like 401ks have moved the burden to save for retirement from companies to people, most ill-equipped and unmotivated in a world where present gratification trumps saving for the future. But behavioral science has made a big impact and promises to do even more to get people motivated to save as detailed in a recent WSJ article (subscription required).
The ideal plan using auto features can get people into a plan at the right deferral rate which escalates over time professionally managed portfolios like target date funds. But this “do everything” technique without engagement will only get us so far. So what can we do to help?
Trying to teach people financial literacy is a failure with academic research showing a .1% change in behavior as a result. The new hot topic financial wellness may also be a flash in the pan – Jamie Greenleaf, a TPSU adjunct lecturer commented at a recent program for plan sponsors, “Financial wellness programs are not used by people who need them.”
So what to do? Here are some simple behavioral science techniques:
- Envision your future self – Software that shows people a picture of what they might look like in 30 years motivates them to save more now.
- Framing – When presented with retirement in 10,950 days v. 30 years, people save 4 times sooner.
- Managing Goals – People closer to their goals save more just as runners near the finish line run faster. Can we make these goals more bite-sized?
- Monitor Progress – When prompted by email to monitor progress, investors are more likely to be successful.
- Accountability – Personal trainers help us get to the gym and so can financial coaches.
- Specific Goals – Let people select their own goals.
- Confidence – Coaches can give us the confidence to be successful
Behavioral science is providing the greatest hope to help people save for retirement but first, we have to recognize the problem and admit what is and is not working like financial literacy training and maybe even financial wellness.
