MADISON, Wis. (7/12/13)--Credit unions can build gentle "nudges" into products and services that don't limit their members' options but place higher value on better choices, according to a new report from the Filene Research Institute.
A nudge is any aspect of the decision process that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic consequences, said the report, "A Practitioner's Guide to Nudging."
Increasing participation in retirement savings plans is a common topic in behavioral economics. As an example, the report outlines the work of a team of Dartmouth College researchers who worked with a not-for-profit institution to help increase participation in its supplementary pension program. After conducting interviews, surveys and focus groups, the team found potential savers struggling with three barriers, including:
A lack of knowledge and information about where to start saving;
A belief that they did not have enough money to start saving; and
A lack of financial self-control.
The research team believed that one of the major reasons individuals do not reach their savings goals is a lack of planning. Coupling this insight with the barriers identified, the team designed a planning aid to reduce the complexity of opening an account and contributing to the pension program. The aid simplified the steps so that the process took no more than 30 minutes.
The planning aid highlighted a range of contribution amounts, from as little as $16 per month to a maximum of $1,666.67 per month, suggesting that it does not take much money to open an account and contributed to a pension program. The planning aid doubled enrollment within 60 days of implementation.
The report offers additional case studies and outlines the process for nudging members and customers.
To download the report, use the link.