Rethinking Savings Interventions

Getting a short loan a decade ago meant privately talking to a close friend to help you out. Social capital was at stake and most people were keen not to default and risk embarrassment in their social circles. A shylock was also an option if you needed a large amount desperately and couldn’t get it from a bank. Today, we have various digital credit products available at the click of a button. Financial education has mainly focused on providing knowledge, tools for budgeting, saving and investment analysis. The main challenges were lack of financial literacy and perhaps limited access to credit. Today’s context demands more.

There was a time we relied on savings alone to handle financial shocks.  In this case, people were well motivated to save which is no longer the case today. The financial market today gives us options (even if limited), where we can borrow and sort financial issues in real time.  Regardless of the interest rate, this is faster and more convenient to most people than saving, borrowing, or even selling an asset. Furthermore, behavioural science research shows us that saving is hard even for ‘rational individuals’ due to factors such as inertia, procrastination and present bias. The context of financial health has changed with globalisation and digital banking.  With trends such as consumerism, online shopping and dark patterns for products such as gambling and subscriptions; we need to rethink savings interventions.  

As with many goals in life, knowing what we’re supposed to do is not enough. We know we need to limit our consumption of junk food to be healthier. We know our likelihood of winning a lottery is negligible – yet we still gamble. We know that we need to save more than we consume to build wealth. We have tools, tips and breakdowns of what we can do to achieve our goals. Atomic habits, Slight edge, putting in 10,000 hours – we get the basic idea. We know that progress is not linear, that it compounds and that we need patience, persistence and grit. In financial education we have tools for setting savings goals, tracking expenses, budgeting and easy access to financial information. The best intervention would be one that makes it easy for us to do what we know we should do.

Retailers around the world have mastered consumer psychology and are maximising on all customers from the rich to the poor with a sole aim of making profits. Online platforms have attention engineers who are competing to ensure we spend time on their sites as they market various products and services to us. Research shows that we spend on average two hours per day on social media alone. As we blissfully browse, a seller is marketing to us and this happens at a subconscious level. Products / services become familiar and ‘top of mind’ due to the exposure and we end up buying. The same happens as we watch our favourite soccer match or TV show. It just feels manipulative that sellers have experts, algorithms and nudges and we on the other hand are blindly walking into consumerism traps and berating ourselves for being impulse shoppers.

Financial education today should include strategies that the customers can use to identify and guard against dark patterns. Or maybe we can eliminate the need to be vigilant by using pre-commitment devices that minimise the disposable income in our hands. We need to come up with sophisticated methods to ensure that we can reap the benefits of readily available products and information while minimising the negative effects on our money. To build wealth, we need to save more than we spend but with consumerism, most households owe more than they earn due to consumption loans. Facilities such as loans benefit us when they’re used for investment purposes. In a nut shell, how can we improve financial health in a consumerism world with easily accessible credit and not enough motivation to save?

Leave a Reply