Buzz
We’re all familiar with the idea that automating savings and establishing spending limits can help us save more. But a fresh report from the Common Cents Lab at Duke University's Center for Advanced Hindsight offers new strategies on how to apply behavioral finance to boost our savings.
The report is packed with insights from the Center's 2017 experiments, which focused on elderly, low-income, and hourly wage workers. Below are some key takeaways you can apply in your own financial journey.
Use Significant Age Milestones to Achieve Your Savings Goals
The report shows that older adults are more likely to adopt new habits when reminded of approaching age milestones. In a collaboration with Silvernest, a service that pairs older homeowners with potential renters, the center tested targeted ads that referenced specific milestones like “You're 64, turning 65. Ready for retirement? House sharing could be the answer.” This approach doubled click-through rates from 2.46% to 5.49%, compared to generic messaging.
This aligns with previous studies showing that people tend to make significant changes in their behavior or life when approaching a new decade (for example, at ages 29, 39, etc.). You can use this to your advantage by listing the financial goals you want to achieve leading up to your milestone birthdays. Set reminders in your calendar and share your goals with others to stay committed.
Focus on Limiting Actions Instead of Tracking Every Dollar
In an experiment analyzing over 30,000 transactions through Qapital, a personal finance app, Common Cents found that people regretted spending money on dining out, coffee, and fast food more than other categories. To address this, they tested various ways of limiting these purchases.
The conclusion: People who restricted the number of times they could dine out (for example, limiting it to two outings per week) were more successful, as opposed to focusing on limiting the amount of money spent. So, consider setting limits on how often you make certain purchases instead of restricting the dollar amount.
Reduce the Impact of Bills by Automating Payments
In collaboration with Qapital, Common Cents discovered that millennials were less likely to regret recurring charges as they became accustomed to seeing them on their monthly statements. In fact, they were '10 percent more satisfied with recurring transactions compared to non-recurring ones.'
'One reason for this is because humans are great adapters,' the report states. 'Our first encounter with something is new and exciting, but after several similar experiences, the novelty fades and our attention wanes until we no longer react the same way. Rip off a Band-Aid once and it stings. Do it multiple times and we begin to lessen the pain.'
Automatic payments can make regular expenses like rent or car payments less painful. 'On the flip side, they make impulse expenses (like another round of drinks or fast food) more noticeable and distinct, since these tend to be paid with cash.' By automating your recurring payments, you get a win-win: Rent becomes less painful each month, while impulsive overspending becomes more apparent (and you can reflect on how it made you feel).
Pick Up the Phone and Be Ready to Wait
Common Cents' study, which observed 20 people negotiate credit card interest rates and surveyed 5,000 on bill negotiations, revealed that the biggest obstacle to reducing APR is simply picking up the phone and waiting. Once people did this, their negotiation skills didn’t seem to matter—just asking was enough to lower their rate.
'The most important step is calling the credit card company,' states the report. 'Once participants made the call, their chances of completing the task were significantly higher.'
Sure, you’re busy, but think about this: You can secure a lower rate just by asking, with no need for negotiation. Given that the average credit card debt for households carrying a balance is $15,654, this could save you a substantial amount over time.
