Yesterday we heard from Kristen Berman, cofounder of Duke’s Common Cents Lab and Bradley Swain, a behavioral researcher at the Common Cents Lab, concerning the ability of HR to influence America’s financial health. Today, we’ll hear the rest of what they have to say.
- Default Employees into Savings or Paycheck Splitting
Most employees are paid through direct deposit, with the default option sending 100% of a paycheck to a checking account. Imagine a world where the opposite was true and employees were defaulted into depositing 100% of the check to savings.
In this scenario, people could, of course, adjust how much they want to send to checking, but the starting point would be to put their paycheck into a savings account. How would America’s savings balances look in this world? Likely a lot higher.
Allowing, encouraging, or even defaulting employees to split their paychecks into multiple accounts at the time that they enroll in direct deposit is about as close to auto enrollment in a short-term savings as we can get without doing it for them.
In addition to encouraging higher levels of savings, check splitting eliminates other important barriers to savings. Depositing money to multiple accounts, particularly accounts that have specific uses (e.g., long-term savings, vacation, and groceries) enhances mental accounting and forces people to think about the trade-offs they are making if they decide to buy coffee out of their transportation budget.
It also eliminates the need to set up additional transfers to savings. This has the added benefit of ensuring that automatic transfer won’t happen at an unexpected time and cause people to overdraft.
- Make a (Half) Day of It
Another way to combat the “do it tomorrow” nature of benefits is to pick a day at work and have everyone enroll or update at once. HR managers could set aside a half day and ask employees to spend this time setting up their retirement, savings, and general financial management. For the amount employers spend to give their employees benefits (typically 25% over the base salary!), this day would ensure employees are not only making full use of their benefit packages but also that employers get the credit they deserve for funding an employee’s retirement and health care.
- When All Else Fails, Just Ask
While some behavioral interventions work because they use clever counterintuitive approaches at the appropriate time, others work because they are more straightforward. For example, consider providing “just in time” information.
A “just in time” intervention is a clear and concise summary of information at the precise point when people are likely to either make a mistake or have a higher degree of motivation. Hospitals that provide checklists to surgeons right before surgery are 22% less likely to make a mistake during the surgery. Why not provide a similar checklist of benefits when new employees are motivated or in need, such as their first day on the job or when they take their first sick day?
Another straightforward method is to “just ask.” Many of our experiments found that even our control conditions performed above baseline. These simple, though somewhat novel, reminders often resulted in 9%–13% of people taking action. All we did was ask.
Kristen Berman is a cofounder of Duke’s Common Cents Lab with Professor Dan Ariely. Common Cents is generously supported by MetLife Foundation. Berman was on the founding team of Google’s behavioral economics team and was previously the founder of Irrational Labs, a behavioral economics nonprofit focused on health and happiness.
Bradley Swain is a behavioral researcher at the Common Cents Lab, where he uses behavioral economics to help low- and middle-income families make better financial decisions. Swain received his Master’s Degree from the University of Miami’s Abess Center for Ecosystems Science and Policy in 2016.