Retirement savings is daunting: Can you nudge your brain to boost your savings rate?
A recent study from BMO found that Canadians believed they would need more than $1.7 million to comfortably retire. Yet many individuals nearing retirement have less than $100,000 saved. Why is thinking about saving - even when you have the means - such a daunting prospect? Assistant professor Avni Shah joined the Executive Summary to explain the behavioural barriers to retirement savings, and showcase some of her research into how we might overcome these blockers.
Show notes
[0:00] Retirement is a rich man’s opportunity, and many people don’t feel they’ll ever have the luxury.
[0:30] Meet Avni Shah, an assistant professor of marketing who studies how and why people make financial decisions.
[1:14] People probably aren’t saving enough for retirement, even if they understand conceptually that they need to save more.
[2:08] Why? Well, we have a bias towards dealing with the needs of today…
[2:35] …the future is hard to imagine…
[3:07] …and it’s cognitively costly to think about ephemeral things like money when it’s so far into the future.
[3:33] Finally, the narrative around retirement – living your best life – might not be effective for large swaths of the population.
[5:35] Avni partnered with Ideas 42 and the Mexican government to help increase the rates of voluntary retirement contribution. They devised three experiments.
[5:46] How the Mexican pension system works.
[6:18] How does beautifying a form impact retirement savings?
[8:20] To increase your desire to save, tell yourself a story about your future.
[9:40] Sometimes what’s requires is a shift in messaging. Instead of selling the idea of “saving for your future,” companies might want to consider selling the idea of “saving for your family’s future.”
[11:58] But it’s important to remember that any behavioural nudge is going to be contextual, and there’s no one-size-fits all approach.
[12:48] Simplifying information can also backfire if the info that’s left is demotivating.
[13:34] And, for individuals, picturing your life in retirement can be a huge motivator for squirreling away a bit more cash.
[14:06] “It makes it easier to see and it's something that is beneficial to them to say okay, that in conjunction with then making it savings automatic and can be tremendously valuable in encouraging people to save and really living in a way that they're not scared about the future.”
