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Trying to save for retirement? A story about your future might help

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Avni Shah

"Future-self interventions" have been shown to improve savings by helping subjects overcome this obstacle. Despite the promise of such interventions, this research has focused predominantly on hypothetical contexts and western settings where the target sample has been predominantly undergraduate students.

In a recent paper with Hal Hersheld (UCLA), David Munguia Gomez (University of Chicago) and Alissa Fishbane (idea42), we set out to answer the following question: would interventions that encourage people to concretely consider their future self have the same positive effect in a real-world setting? First, a bit of background. For many individuals — and in particular, for those outside of WEIRD (Westernized, Industrialized, Rich and Democratic) cultures — a well-funded retirement is considered a luxury that is only afforded to a select few. We felt it was imperative to determine the extent to which interventions can extend beyond laboratory settings and WEIRD contexts, which represent just 12 per cent of the world’s population but over 90 per cent of social psychology research samples. Indeed, there has been a growing call for psychological theories to be tested in applied contexts in order to refine the theories and bolster practical applications that can inform pressing policy issues.

Could future-self interventions significantly improve savings behaviour at scale across broader populations? And, would interventions that encourage people to elaborate on future outcomes during retirement still have a positive effect in cultural settings where retirement and savings are not the norm?

To address these questions, we partnered with a Mexican bank and employed a field experiment in Mexico, a country where less than 0.5 per cent make a voluntary savings contribution annually. We investigated whether a future-self intervention led participants to sign up for a recurring retirement savings program relative to the status quo policy, which simply asked individuals whether they would like to save for retirement.

To do so, we developed a tablet-based application comprising three key sections: a question exercise, a story and a prompt to save more via setting up a direct debit into a retirement account. The interventions were delivered via the company’s sales team, whom we referred to as promoters, during meetings with account holders.

In our primary intervention, individuals received questions that were meant to encourage concrete thinking about their future lives. In a second intervention, they were encouraged to think about their past as well as their future, in an effort to remind them how previous actions may have benefited them in the present.

The answers to these questions were then used in a Madlibs-style story about the account holder’s life and aspirations for the future, piping in the account holder’s responses to personalize the story. We then measured whether this exercise influenced the likelihood that individuals set up an automatically recurring direct-debit savings deposit.

Future-self interventions significantly increased the proportion of account holders who made a voluntary retirement contribution. Specifically, the "future + past condition" significantly increased the proportion making a voluntary retirement savings contribution (1.33 per cent) compared to the control condition (0.11 per cent); and the "future condition" significantly increased the proportion signing up from 0.11 to 4.45 per cent. Overall, the future intervention significantly increased the proportion signing up to make a voluntary contribution, improving signups by over two times relative to the future + past treatment condition.

Researchers across various disciplines such as psychology, philosophy, marketing and economics have long argued that the degree to which individuals feel connected to their future self can play a role in expectations for how much future utility they may feel in the present. Our work makes three main contributions in this space.

First, we provide some of the first field evidence demonstrating that improving the ability to imagine one’s future self significantly improves retirement savings behaviour. As indicated, many previous interventions have drawn on these ideas but failed to scale up to a natural field environment, calling into question the robustness of the effects. This is not just practically important; examining whether theoretically driven interventions are equally successful in a field setting can, in itself, strengthen the theories from which they were developed.

Second, our results suggest that all intervention exercises that call to mind future selves may not be created equally. Despite the strong similarities in question prompts for our two treatment interventions, there was a significant increase in savings rates when people were given the future-self intervention alone compared to the past-self plus future-self one. This surprised us because theoretically, the latter used a more readily identifiable entity (the past self) to help people connect to a more difficult-to-imagine one (the future self). Even though this condition improved behaviour relative to a traditional appeal, doing so was still significantly less effective than having people solely elaborate on their future selves.

Why might this be the case? It is possible that elaborating on a more concrete past increased the focus on enjoying the present. Anecdotally, two participants mentioned previously being in bad relationships and then feeling liberated post-breakup. Elaborating on a past self that was worse off than the current self may have potentially increased the likelihood of exhibiting present bias — the inclination to prefer a smaller, present reward to a larger, later reward — as people may have felt more licensed to indulge in the here and now.

Finally, our results suggest that future-self interventions are effective in novel cultural contexts. As indicated, Mexico has historically low rates of retirement savings, with less than one per cent of active account holders making voluntary contributions each year. Because many older individuals expect to be financially supported by their children or extended family, retirement savings are not typically prioritized in Mexico. As a result, it was possible that our interventions could have been met with limited success in this context: Encouraging people to elaborate on future selves who might ultimately be helped by younger generations could have just as likely lowered the motivation to save. And yet, we found just the opposite. The effectiveness of future-self interventions are thus not only promising for citizens of Mexico, they represent a powerful tool for improving retirement savings behaviour more broadly.

From a policy perspective, it is important to note that the interventions we identified will not solve the lack of retirement savings alone. Increasing the propensity of making regular, small savings contributions nonetheless plays an important role in ensuring a more secure financial future. While other interventions require regulatory changes or more expensive additional forms of communication (e.g. SMS blasts or educational programs), our results relied on a low-cost, easy-to-implement exercise.

An open question, however, remains: Do such future-self interventions lead to lasting impact on behaviour, or do they just provide a short-term boost? Follow-up work investigating whether individuals continue with their recurring savings plan will be essential in understanding how to best motivate and sustain long-term behavioural change.

Cover image of Rotman Management magazineThis article first appeared in the Spring 2022 issue of Rotman Management magazine. Published in January, May and September, each issue features thought-provoking insights and problem-solving tools from leading global researchers and management practitioners. Subscribe Today.

Avni Shah is an assistant professor of marketing in the department of management, University of Toronto Scarborough, with a cross-appointment to the Rotman School of Management. She is also a research fellow at the Behavioural Economics in Action (BEAR) research cluster at the Rotman School.