A reminder can change how you save

You decide to save, and suddenly it is the end of the month. You did not exactly forget. Other things simply crowded it out. Dean Karlan and his colleagues suspected that this slipping out of mind is one of the things that gets in the way of saving, and they tested it.

What we know

The researchers ran field experiments, randomized controlled trials, at three banks in Bolivia, Peru and the Philippines. The participants had recently opened accounts built around a savings goal. Some were randomly chosen to receive reminders, such as text messages, and were compared with people who received none.

• People who got reminders were more likely to reach their savings goal, and they saved more.
• The wording mattered. Messages that mentioned both the person’s own goal and the reward for reaching it, such as interest, did especially well.
• Gain versus loss framing made little difference. “Save and you gain” and “Don’t save and you lose” did not produce a clear difference.
• Extra reminders near the end added nothing.

The authors propose that people pay too little attention to large future expenses that are not on their minds day to day, that this leads to under-saving, and that reminders help make up for it.

Think of costs that come once or twice a year, such as an annual fee, a gift season or a trip. Because they are not part of the monthly routine, they are easy to overlook until they arrive. A reminder pulls them back into view while there is still time to prepare.

How to read it

• The design supports a causal reading. These were randomized experiments at banks in three countries.
• These people already wanted to save. They had chosen a goal and opened an account. The same result may not hold for people with no plan to save at all.
• It is not a study from Japan. We have not found a comparable experiment in Japan.
• It is about saving, not income.

In a related experiment in the Philippines that shares one of the same authors, offering an account that locks money until a goal led to higher balances (D8). Tying yourself to a goal and being reminded of it are ideas that work well together.

A small step today

You can build your own reminder. To stay close to what the research found, write the goal and the reward together, not just the word “savings”.

• Set one phone reminder for payday or the first of the month. Write what the goal is and how much is left, for example: “Trip fund: this much left. Move this month’s share.”
• If your bank lets you, name your savings account after the goal.
• In the study, extra reminders near the end did not add anything. Start with one reminder on a fixed day.

When you log “Paid myself first” in the app, taking a moment to recall your goal follows the same idea. Remember, move the money, log it. Repeat that order each month.

Sources

• [D9] Karlan, McConnell, Mullainathan & Zinman (2016) Getting to the Top of Mind: How Reminders Increase Saving. Management Science.
• [D8] Ashraf, Karlan & Yin (2006) Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines. Quarterly Journal of Economics.