If We Simplify It, Will They Save?
Blog Post
March 3, 2010
This post appears in the insightful blog, Applying Behavioral Sciences in the Real World. Mindy Hernandez is a CFED Innovator-in-Residence and behavioral economics expert who provides ongoing advice to the AutoSave project. Following Mindy's brief introduction, we discuss the pilot and its early findings.
Early last year I had the opportunity to work with Alejandra from the New America Foundation and her partners at MDRC on their fascinating project, AutoSave. AutoSave has a simple and laudable goal: make saving at the workplace so easy it feels automatic. Actually, the initial goal was to create an automatic enrollment for savings. But unlike retirement savings, automatic enrollment is not yet possible for personal savings. While at first this seemed like a roadblock for AutoSave, it became a useful challenge for social policy design.
Automatic and default enrollment is the ever-cited winner (the “Michael Jordan” as Sendhil Mullainthan of ideas42 calls it) of behaviorally informed policy design. It’s free, it’s simple and it’s really powerful- we’ve seen retirement savings take-up jump from 20% to over 80%. But, like Michael Jordan, it’s a pretty special case. Defaulting is often not possible or, actually, desirable. Depending on my financial circumstances, paying off my debt might be a better decision than saving. (And even if not, while I’d like to be defaulted into all sorts of good behavior, I also like my freedom to make a few bad and lazy choices.)
So what’s the next best thing? AutoSave is an attempt to find out.
What is AutoSave? Isn’t that the computer back-up system?
<p>There are some similarities between AutoSave and the program that saves your documents when your computer crashes: both are designed to protect what’s important to us, and to provide a little security from unexpected events. AutoSave is a low cost, potentially scale-able model for increasing personal savings.</p> <p><strong><i>How did the AutoSave project start? </i></strong></p> <p>The AutoSave concept was inspired by the success of the retirement saving-focused projects—showing that automatic enrollment and automatic escalation improved employee take-up in employer-sponsored retirement plans. This got us thinking, could similar behavioral supports be used to fix a three-fold problem: too many people are unprepared for the inevitable emergency or unexpected expense with “ready” savings; few suitable products exist to encourage small savings; and inertia often keeps us from even beginning to save.</p><p><strong><i>What is the AutoSave pilot? </i></strong></p> <p>The AutoSave pilot is a road test of whether this vision for increasing personal (non-retirement) saving at the workplace is realistic and attractive to financial institutions, employers, and their employees. We* teamed with social policy researchers at MDRC to design, develop, and implement a six-month pilot. Six employers (a mix of public, private, nonprofit, for-profit, large, and small), and five financial institutions (3 major banks and 2 credit unions) are currently participating in the pilot across the country.</p> <p>In these pilot sites, employees are encouraged to “AutoSave” by opening a low- or no-fee savings account, and authorizing their employer to directly deposit $15-$25 from their take-home pay into this account.</p> <p>Prior to rolling out the pilot, each site worked intensively to:</p> <p>1) Negotiate the terms of the savings account, such that employees find it rewarding to save in small dollar amounts, and have funds protected from fees and everyday purchase use;</p> <p>2) Streamline the steps involved and simplify the forms used to collect only the most essential applicant information; and</p> <p>3) Create a process for AutoSave enrollment to take place <em>entirely at the employer’s workplace</em>, and minimize the administrative burden felt by employers, employees, and financial institutions. </p> <p>While designing the pilot, we learned that employers could not automatically enroll their employees in AutoSave, like they could in employer-sponsored 401(k) retirement plans. Thus we adopted as many behavioral insights as possible, in an attempt to have AutoSave enrollment <em>feel </em>as automatic and easy as possible, without crossing employee or employer comfort lines.</p> <p><strong><i>How does the AutoSave pilot apply lessons from behavioral economics? </i></strong></p> <p>By making it EASY (to save). In that spirit, click play <object type="application/x-shockwave-flash" data="/files/audio/players/1pixelout.swf" width="290" height="24"> <param name="movie" value="/files/audio/players/1pixelout.swf"> <param name="wmode" value="transparent"> <param name="menu" value="false"> <param name="quality" value="high"> <param name="FlashVars" value="playerId=&bg=0xcccccc&leftbg=0x0d253f&rightbg=0x4c7888&rightbghover=0x6499ad&lefticon=0xefefef&righticon=0xFFFFFF&righticonhover=0xefefef&text=0x000000&slider=0x80B3CC&loader=0xE5EFF5&track=0xFFFFFF&border=0x80B3CC&soundFile=/downloads/alejandra-podcast-021610.mp3"> <embed src="/files/audio/players/1pixelout.swf" flashvars="playerId=&bg=0xcccccc&leftbg=0x0d253f&rightbg=0x4c7888&rightbghover=0x6499ad&lefticon=0xefefef&righticon=0xFFFFFF&righticonhover=0xefefef&text=0x000000&slider=0x80B3CC&loader=0xE5EFF5&track=0xFFFFFF&border=0x80B3CC&soundFile=/downloads/alejandra-podcast-021610.mp3" width="290" height="24"> </object><br>to hear the 90 second overview accompanying the slide below. </p><p><b><img alt="" src="/downloads/slide.jpg" style="width: 600px; height: 449px;"></b></p><p> </p><p><strong><i>What have you found so far?</i></strong></p> <p>In four months “on the ground,” we see a widely shared value that saving is an end in itself. Employers and employees alike acknowledge that becoming more financially secure is an ongoing goal.</p> <p>Focus groups have told us that AutoSave participants who struggled to save because of inertia, procrastination, lack of self-control, or confusion about appropriate products, did not face those barriers with AutoSave. This <i>suggests </i>that simplifying the process and adding enrollment supports has led to take-up.</p> <p>We’ve also noticed that the recommended savings amount ($25/paycheck in most sites) is relatively “sticky,” that is, employees are choosing and staying at this savings level.</p> <p>We have seen take up rates as high as 25%, which is very exciting. But the take-up rate varies in each site and could be related to the employees use of direct deposit, the outreach and marketing performed on behalf of AutoSave, employee and employer characteristics, and employees’ past experiences with banks and banking </p> <p><strong><i>What’s next for AutoSave? </i></strong></p> <p>We’ll monitor take-up and field experiences from the pilot sites for a few more months.</p> <p>We’ll take a look at the aggregate data on account usage: Did participants remove money regularly from these accounts or leave them untouched? Did participants change the savings level over time? Then, we’ll step back, look at the model, and see what operational, research, and policy questions need further attention before proceeding to any further piloting or replication. The next phase of the project may include additional pilots and/or a larger, experimentally-designed demonstration, or policy recommendations. Ideally, we could set up a test of AutoSave to observe how the presence of “ready savings” impacts an employee’s overall financial stability.</p> <p>For an example of an enrollment form resembling what AutoSave sites are using in their pilots, please <a href="/downloads/AutoSave%20Form.pdf">click here</a>. </p><p>To read more about AutoSave early pilot lessons, please <a href="/downloads/AutoSave%20Insights%20Paper%20Final%201-15-10_0.pdf">click here</a> for a January 2010 paper.</p><p>To read the original AutoSave concept paper by Reid Cramer, please <a href="/downloads/AutoSave.pdf">click here</a>.</p> <p>To learn more about MDRC’s role, please visit their AutoSave page <a href="http://www.mdrc.org/project_16_98.html">here</a>.</p> <p><em>* Ellen Seidman, Reid Cramer, and myself.</em><br><i> Caroline Schultz, Jim Riccio, John Wallace of MDRC and consultants Scott Zucker, Terri Feeley and George Barany.</i></p><p><em>This initiative is made possible by the generous support of the Rockefeller Foundation and the Charles Stewart Mott Foundation. We also thank the Annie E. Casey Foundation for making Mindy Hernandez available (and indispensible) to AutoSave. </em></p><p> </p>