This document summarizes research on saving behaviors and effective savings strategies. Some key findings include: - About half of Americans have a savings plan but fewer have a spending plan that allows them to save. Having specific savings goals is linked to better financial outcomes. - Automatic savings, employer-sponsored retirement plans, and visualizing future needs can help more people save successfully. Behavioral biases like underestimating compound interest must be addressed. - Lower-income households can save, even small amounts, when given the right incentives and tools. Matching programs, financial education, and automated savings increase savings rates among all income groups.

1. Saving Money:
Research Insights
https://learn.extension.org/events/1442
Barbara O’Neill, Ph.D., CFP®, AFC, CHC
Rutgers University
oneill@aesop.rutgers.edu

2. America Saves Sound Bite

3. Did You Ever Wonder…
Does Research Support
The Three Keys to Saving?

4. Research Study Topics
• Savings behaviors of Americans
• Characteristics of successful savers
• Resources for saving money
• Barriers to saving money
Mix of government, non-profit, and academic studies

5. Research About
Savings Behaviors

6. Savings Behavior
• 6th Annual Savings Survey
(national) by CFA & ASEC (2013):
http://www.consumerfed.org/news/644
• 54% of Americans “have a savings
plan with specific goals”
• 43% have a spending plan that
allows them to save for goals
• 50% of pre-retirees save for
retirement at work
• 41% preauthorize transfers from
checking to savings or investments
• 49% know their net worth
• 65% have sufficient emergency
savings
Implications
• Provide tools for financial goalsetting and net worth and
spending plans
•
http://njaes.rutgers.edu/money/pdfs/goalse
ttingworksheet.pdf
•
http://njaes.rutgers.edu/money/pdfs/networ
thcalcworksheet.pdf
•
http://njaes.rutgers.edu/money/pdfs/fs421w
orksheet.pdf
• Provide tools to sign up for
employer savings plan at financial
seminars and benefit fairs

7. Savings Behavior
Implications
• 5th Annual Savings Survey
(national) by CFA & ASEC (2012): • Provide planning tools and
http://americasavesweek.org/image
encourage future-mindedness
s/asw2012pr.pdf
– http://www.americasavesweek.org/forindividuals/picture-your-savings-goal
• 2/3 of Americans spend < their
• Provide successful savings role
income and save the difference and
models…people with “street cred”
have adequate emergency funds
• Having a savings plan with specific
goals can have beneficial financial
effects, even for lower-income
families (< $25,000)
• Those with a savings plan are
much more likely to spend <
income and save (85% of all 1,007
respondents vs 44%)

8. Savings Behavior
• 2013 Retirement Confidence
Survey (EBRI): 57% of U.S.
workers have < $25,000 in total
savings including 28% that have <
$1,000 (excluding a primary
residence and DB pension plan)
• Only 12% have saved $250,000 +
• Workers who participate in a
retirement savings plan at work
(45%) are considerably more likely
than those who are offered a plan
but choose not to participate (22%)
or are not offered a plan (18%) to
have saved at least $50,000
•
http://www.ebri.org/pdf/surveys/rcs/2013/Fin
al-FS.RCS-13.FS_3.Saving.FINAL.pdf
Implications
• Stress the benefits of employer
savings plans
• Sign people up at workplace
seminars or auto-enroll them
• Fine line between educating
people and scaring them so they
say “Why bother? I’ll never be
able to save enough money”
• Example: Showing the 4%
withdrawal rule on a low sum:
$25,000 x .04 = $1,000 a year.

9. Savings Behavior
• Fidelity: 401(k) plan participants
save 8% of their salaries in
401(k) plans; When a typical
employer match is factored in, the
savings rate increases to 12%
• Average 401(k) at end of 2012
had $77,300
• Younger workers use Roth
401(k)s the most: 10% for
workers in their 20s vs. 6% of
workers overall
•
http://www.fidelity.com/insidefidelity/employer-services/fidelity-analysisfinds-record-high-average-401k-balance
Implications
• Teach the “Kick It Up a Notch”
behavior change strategy:
http://njaes.rutgers.edu/sshw/workbook/21
_Kick_it_Up_a_Notch.pdf
• Show people the dollar benefits of
an “extra notch”
• 1% More Calculator:
http://www.nytimes.com/interactive/2010/0
3/24/your-money/one-pct-morecalculator.html?_r=0
• Use a Monte Carlo calculator to
show how extra savings increase
the chances of retirement success

10. Savings Behavior
• In 2012, 11% of 401(k)
participants contributed the
maximum possible amount
(Vanguard)
– $17,500 < age 50 (2014)
– $23,000 age 50 + (2014)
• Saver’s Credits were claimed on
6.1 million tax returns in 2010 but
most people received small
benefits: $122 for individuals and
$204 for couples
•
http://money.usnews.com/money/retireme
nt/articles/2013/11/04/modest-401k-andira-changes-coming-in-2014
Implications
• Many government incentives to
save are under-utilized
• Boosting your savings rate is a
sure way to improve your
retirement prospects
• “Reference group” info like this is
good so people know how they’re
doing compared to others

11. Characteristics of
Successful Savers
• Okech et al. (U of Georgia): Paying
rent with cash, using VITA to
prepare taxes, and witnessing
parents save money in financial
institutions were positively
associated with likelihood of having
a motivation to save:
Implications
• Encourage parents to model good
financial management practices for
children
• Foster deliberate parent-child
interaction about savings; use
normal events as “teachable
• http://www.tandfonline.com/doi/abs/
moments”
10.1080/15588742.2013.766917#.U
uARJ00o6M8
• Coordinate savings outreach
programs with tax preparation
outreach

12. Characteristics of
Successful Savers
• When kids have even a small
savings account in their name, it
increases the chance that they
will persevere and do what it
takes to graduate from college
• Those who have an account are
about seven times more likely to
attend college than youth without
savings
• The correlation between savings
and college graduation is
particularly strong among young
adults in families earning < $50k
•
http://www.newamerica.net/node/69416
•
http://link.springer.com/article/10.1007/s1
0834-012-9341-0#page-1
Implications
• Even modest savings can be
empowering and has aspirational
effects: gives people a sense that
they have control over their destiny
• Having money saved for college
reinforces the message to go to
college and work hard for good
grades
• Encourage youth savings and stress
the psychological benefits

13. Characteristics of
Successful Savers
• Fisher & Anong (2012): 2007 SCF
data: 46% saved regularly, 32%
irregularly, 22% did not save
Implications
• Motives are strong predictors of
disciplined saving
• Precautionary and retirement
• Emphasize the importance of
motives, long-term planning
identifying goals to encourage a
horizon, and higher income
regular habit of discretionary saving
increased likelihood of saving
and automated saving
regularly or irregularly vs. no saving
• Households in all income groups
can be regular savers
• Retirement motive separated
regular savers from irregular
savers: 1.5 times more likely
http://www.afcpe.org/assets/pdf/v23_j4.pdf
• Stress saving small amounts over
long time horizons which makes
goal attainment more feasible

14. Characteristics of
Successful Savers
•
•
•
Grinstead et al. (2011) study of IDA
program participants in American
Dream Demonstration
Implications
• Learning needs vary. If resources
allow, financial education should
About 4 of 5 low-income working
be tailored and individualized (e.g.,
families are “asset poor” with < 3
financial coaching)
months expenses at the federal poverty
level to survive a financial crisis
• Peer financial counseling is a lowcost option to savings coaches
Hours of participation in financial
education program, higher matched
•
cap, prior use of a savings account, and
greater educational attainment were
•
associated with greater likelihood of
savings and saving goal achievement
http://www.afcpe.org/assets/pdf/vol_22_issue_2
_grinstead_mauldin_sabia.pdf
High match rates and match caps
motivate people to save
Provide a link between people’s
saving goals and financial
education content

15. Characteristics of
Successful Savers
• Hogarth & Anguelov (2003) study
of savings by low-income
households, SCF data
Implications
• Even poor households can save
although amount is low; people at all
income levels were savers
• Ability to save was associated
with socioeconomic (e.g., income)
• Poor households could still probably
& demographic (e.g., education)
not meet short-term emergencies
characteristics, expectations (e.g.,
about future income), motivations
• Hispanics were more likely to be
(e.g., a reason to save), access to
savers than White households in
resources, & institutional
this study; not always the case
environment (e.g., credit checks
• Expectations and motivations matter
on potential depositors)
• 60% of households at or below
poverty level indicated they saved
http://www.afcpe.org/assets/pdf/vol1411.pdf
• Support policies and programs that
promote saving

16. Research About
Savings Barriers
and Resources

17. Savings Barrier:
Scarcity of Attention
• Urgent current expenses trump
saving for future priorities
• Scarcity engrosses people in
current needs
• If financially distressed: less
mental capacity to address
problems & future goals
Implications
• Automated savings
• Auto escalation (e.g., Save More
Tomorrow)
• Form 8888 for automatic tax refund
savings
• www.futureme.org (send e-mail to
• Eldar Shafir (Princeton): Why
your future self)
Having Too Little Means So Much:
http://money.cnn.com/2013/12/01/lead
•
ership/saving-money.moneymag/
Target-date lifecycle funds

18. Savings Barrier:
Exponential Growth Bias
• “Tendency to linearize exponential
functions when assessing them
intuitively”
– People severely underestimate
how much interest they earn on
savings or pay on credit cards
• Biased people borrow more, save
less, and favor shorter maturities
• Stango, V. and Zinman, J. (2009),
Exponential Growth Bias and
Household Finance. The Journal of
Finance, 64: 2807–2849.
Implications
• Teach The Rule of 72 so people
understand “doubling periods”
• Use hands-on activities to
illustrate the effects of compound
interest on debt and savings
– http://rci.rutgers.edu/~boneill/assignm
ents/sliderule1.html
– http://rci.rutgers.edu/~boneill/assignm
ents/sliderule2.html

19. Savings Resource:
Visualizing the Future
• People need to visualize the future
impact of their savings
• Many people are not good with
long-term decisions
• Hal Hershfield (NYU) et al.: people
save more money after being
shown digitally altered pictures of
themselves at older age
• http://www.marketingpower.com/ab
outama/documents/jmr_forthcomin
g/increasing_saving_behavior.pdf
Implications
• Show people what they could look
like:
– http://faceretirement.merrilledge.com/
– http://in20years.com/
•
Show people how much money
they can lose by not saving:
http://rci.rutgers.edu/~boneill/assignments/s
liderule2.html

20. Savings Resource: Workplace
Savings Planning Aids
• Lusardi et al. study: simplifying the
process of enrolling in employer plan
motivates employees to save
• Used flyer that broke the process
down into 7 steps and video program
• 56% increase in election behavior
within 30 days of viewing
communication programs vs.
employees not exposed to them
• Differences were sustained after 60
and 90 days
•
http://www.nefe.org/Portals/0/WhatWeProvide/
PrimaryResearch/PDF/DartmouthStudy.pdf
Implications
• Design initiatives that overcome
barriers to save
• Make “how to” information
“sticky”
• Break down financial
recommendations to save into
“baby steps”
• Develop videos that feature
actors from the target audience
being reached

21. Savings Resource:
Future Forecasts
• People are motivated to save by
knowing how much income they
can withdraw from 401(k) in
retirement
Implications
• Study by Gopi Shah Goda
(Stanford) et al.: Workers who
received brochure showing
increased income from increased
savings saved $1,150/year more
than those that didn’t get pamphlet
• Use retirement income calculator
tools such as
http://www.bankrate.com/calculat
ors/retirement/retirement-planincome-calculator.aspx and
http://money.cnn.com/calculator/r
etirement/retirement-need/
• http://crr.bc.edu/wpcontent/uploads/2013/04/IB_13-4508.pdf (projections help to
overcome tendency to
procrastinate)
• Lobby employers or plan
providers for personalized
retirement income projections
• Translate savings RATES into
savings INCOME

22. Savings Resource:
Prize Linked Savings (PLS)
• People are more likely to save
when offered the chance to win
cash or prizes
• PLS products more effective at
inducing savings than standard
interest-bearing accounts offering
the same expected return
• Controlled experiment by FilizOzbay (U of Maryland) et al.:
http://www.nber.org/papers/w19130
http://econweb.umd.edu/~ozbay/savings.pdf
Implications
• Combine features of savings and a
lottery, especially for low-income
people who spend a high % of
income on lottery tickets and view
lotteries as a form of financial
planning (not necessarily irrational)
• Resources:
http://www.savetowin.org/
http://saveyourrefund.launchrock.com/
http://www.d2dfund.org/
http://blogs.wsj.com/economics/2013/06/21/promi
se-of-prizes-helps-people-save/

23. More About PLS Programs
• Savings account that pools some of the interest from all
depositors (or uses sponsorship funds) and pays out a big
lottery prize every month or so
• Combines the thrill of a lottery with the safety of a savings
account
• A “no-lose lottery” because depositors have a chance to win
but can’t lose their deposited savings
• In 2009, Americans spent $58 billion on lottery tickets; about
$200 per person
• In all but a few states, PLS is illegal
– Big obstacle: state-run lotteries
http://freakonomics.com/2010/11/18/freakonomics-radio-could-a-lottery-be-theanswer-to-americas-poor-savings-rate/

24. Savings Resource: Understanding
the Impact of Compounding
• When shown the positive effect of
long-term compounding, people
were motivated to increase their
savings
Implications
• People incorrectly assume that
savings grows linearly rather than
exponentially
• “Recency bias” of current low
interest on savings doesn’t help
• Median estimate of what account
balance would be was < 10% of
what it would be after 40 years
with a given rate of return
•
http://www.scribd.com/doc/76254607/Mis
understanding-Savings-GrowthImplications-for-RetirementSavingsBehavior
• People have a hard time
grasping the concept of
exponential growth in savings
• Need to provide hands-on
experience with savings growth
– Time Value of Money Problems:
http://rci.rutgers.edu/~boneill/present
ations/index.html
– CEE Compound Interest Calculator:
http://www.econedlink.org/interactive
s/index.php?iid=2&type=educator

25. Savings Resource:
Text Messages
• Karlan et al. (Yale): conducted
experiments with text messages
• Even low-income bank customers
managed to save part of their
income when nudged by regular
text messages
• “Reminders will be more effective
when they increase the salience
of a specific expenditure”
• http://karlan.yale.edu/p/Top-ofMind-April2010.pdf
Implications
• Regular “nudges” can motivate
people to save
• Text messages are an effective
motivational tool
• Reinforce the connection between
saving and specific financial goals
• Brain studies: imaging a future
goal is almost as powerful a “zing”
as achieving it (e.g., buying a car)

26. Other Relevant
Research Related to
Saving Money

27. The Power of Social Norms
• Goldsten et al, (2008) study of
social norms to change behavior;
experiment about environmental
conservation program in hotels
• Telling people “the majority of
guests reuse their towels” proved
superior to traditional appeals used
by hotels that focus solely on
environmental protection benefits
• Even more superior results for the
setting that closely matched
participants’ immediate
circumstances (“the majority of
guests in this room reuse their
towels”)
• http://www.carlsonschool.umn.edu/
assets/118359.pdf
Implications
• Provide positive financial frames of
reference such as % of employees
participating in an employer’s
retirement savings plan
• Provide relevant research findings
about financial behaviors of
Americans
• Use the “Wealth Test” from The
Millionaire Next Door: formula
based on age and income:
http://www.bauer.uh.edu/drude/Net
.Worth.Worksheet.pdf

28. The Marshmallow Test: Delayed
Gratification and Self-Control
Implications
• Mischel et al. study of delayed
gratification (late 1960s/early 1970s) • When people are put in situations
where they trust in a clearly
• 4-year old children offered a choice
defined long-term gain, they are
between one small reward now or 2
more likely to pursue it
rewards if they waited 15 minutes
• Willpower appears to breed longterm success in life (strategic
• Children who waited had better life
reasoning skills and trust too?)
outcomes including higher SAT
scores and scholastic performance, • Teach long-term gains of saving
less substance abuse, fewer
behavior problems, and better social • Develop learning activities that
encourage people to develop
skills and stress coping skills
willpower
http://harbaugh.uoregon.edu/Readings/UGBE/Mi
schel%201989%20Science,%20Delay%20of%20
Gratification.pdf
• Foster trust by learners

29. IDA Program Research
• Matched savings program for
income-eligible individuals and
families to buy a home, pay for
education, or start/expand a
business; operated by government
or non-profit agencies:
http://cfed.org/programs/idas/ida_basics/
• Often a 50 cent/$1 or $1/$1 match
• IDA programs include a financial
education component
• Effects of financial education level
off after 12 hours:
http://econpapers.repec.org/paper/wpawuwp
he/0108001.htm
• Those who successfully complete
IDA program have higher levels of
asset ownership than dropouts:
http://www.joe.org/joe/2009december/rb3.php
Implications
• Financial education has been
found to have a large effect on
savings outcomes in IDA programs
• IDA matching is a powerful
incentive to save
• Financial education should
compliment institutional structures
like IDA programs that foster
saving (“teachable moment”):
http://www.urban.org/UploadedPD
F/311224_financial_literacy.pdf
• Encourage qualified individuals to
find supportive community savings
programs

30. America Saves Sound Bite: Not
Just a Slogan but Saving
Strategies Informed by Research