Saving money is great for the future, but spending it is more fun now. Connecting your present and future self is one of the biggest challenges of money management. Research shows the occasional positive nudge really can help you stick with your goal.
In a study published by the Rand Corporation, researchers looked at different methods for saving money to see how effective they were. Participants were told that they would win either $50, $100 or $500 in a random lottery for participating in the study, but they had to decide how much they wanted to save. They were also assigned one of three types of accounts:
- The “traditional” account: “A typical savings account that would earn 30% annual interest over the next six months, with no restrictions on withdrawals.”
- A “hard commitment” account: An “account that disallowed all withdrawals of any deposited amounts until the end of the experiment six months later. This account similarly earned 30% interest.”
- A “soft commitment” account: an account that was “identical to the Traditional Account but included soft ‘nudges’ to encourage respondents to save”.
These “nudges” included reminding them about their savings goals, asking them to use one word to describe how they would feel about reaching that goal, and then writing, “I am a good saver. I can achieve my savings goal.”
Every month, savers were sent balance updates and asked if they wanted to save more. At the end of the experiment, the “soft commitment” savers were more successful overall. They study explained:
…the soft commitment treatment led to a moderate (and, in the case of the 0 awards, statistically significant) increase in amounts saved at the end of the study relative to participants who received no form of commitment. This effect was concentrated among individuals who were impatient and thus more likely to benefit from increased intrinsic motivation.
It’s one study, and your own mileage may vary, but it goes to show that a few money saving tips really do work, namely remembering why you want to save in the first place and implementing some kind of accountability to remind you that you’re capable. If you have savings goals for the New Year, send yourself periodic reminders about why your goal is important. If you keep the goal front of mind, it makes it a little more present, and you’re more apt to stick with it. To read more about the study, head to the link below.