One of the most common ways to get people to save is through their employer. In particular, behavioral economics—that marriage of economics and psychology that has put terms like “nudge” into the popular lexicon—has provided a powerful tool for increasing savings, in the form of the default enrollment. The idea is simple: people save more in retirement accounts when they are automatically enrolled by their employer than when they have to sign up themselves. Most U.S. employers have adopted default savings programs, but the idea is only just entering poor countries, where saving is less common. According to World Bank figures, half of adults in high-income OECD countries save in a formal account; in developing economies, it’s only one in five. But we now have some evidence about how to scale nudges to help change this.
How Employers in Poor Countries Are Using Nudges to Help Employees Save Money
behavioral economics – that marriage of economics and psychology that has put terms like “nudge” into the popular lexicon – has provided a powerful tool for increasing savings, in the form of the default enrollment. The idea is simple: people save more in retirement accounts when they are automatically enrolled by their employer than when they have to sign up themselves. Most U.S. employers have adopted default savings programs, but the idea is only just entering poor countries, where saving is less common. Researchers partnered with Roshan, the largest mobile phone company in Afghanistan, and helped them design a default savings account that was provisioned entirely over the mobile phone network, so that people could make deposits and withdrawals without ever visiting a bank. They found that when employees were randomly assigned – by default – to automatically contribute a portion (5%) of their salary to savings, they were much more likely to participate than those who had to actively enroll of their own accord.