We’ve all been nudged before. But did you know there are different types of nudges?
Behavioral economists (those folks who look at why we make the choices we make with our money) have their own definition: “a subtle policy shift that encourages people to make decisions that are in their broad self-interest.”
An example of this type of nudge happened during the last tax season. Earn and Commonwealth (two national nonprofit organizations active in building economic opportunity for low-income and vulnerable families) teamed up to offer a nudge to save.
At tax time, Earn and Commonwealth asked potential tax-time savers to pledge to save a part of their tax refund. If they pledged to save, signed up for SaverLife[1], linked a bank account, and then direct deposited at least $50 of their refund, they were eligible for a cash prize.
And while you might think that the cash prize was the main driver for getting participants to save, research on the program actually showed that a majority of the participants were influenced by the pledge itself, which of course was the nudge! Self-reported survey responses of pledgers showed that 65% reported saving all or part of their refund, with 60% stating that the pledge influenced what they did with their refund.
So why is this important? Because we know that tax refunds are often the largest lump sum some families will see all year. Therefore, if we can encourage more taxpayers to save part of their refund, we can make significant headway in helping families build a stronger financial foundation.
For the last three years, Southern Bancorp Community Partners (SBCP) has promoted its own program to encourage saving at tax time, called Split, Save, and Win (SSW). If you enroll in the program and save part of your federal refund with Form 8888, you are not only saving, but you are also entered into a weekly drawing for a $50 cash prize as well as a $1,000 grand prize at the end of tax season – that’s a win-win.
SBCP is currently looking at options for its own savings “nudge” in 2019 while exploring other ways to help families save (check out last week’s blog “Add a Line for Savings”). It’s all part of Southern’s mission to identify creative and effective strategies to help everyone in the community build wealth. Stay tuned for more…
[1] EARN‘s innovative online program, SaverLife, empowers Americans to take charge of their finances by providing digital financial coaching content, access to resources, and small-dollar cash incentives for regularly setting aside savings.