Researchers have designed a mobile money-based wallet that could “nudge” people into saving.
The researchers worked in collaboration with a mobile network provider in Afghanistan called Roshan Telecommunications to create the product.
Billions of people worldwide, including those in developing countries, face challenges saving money. They may already hold a device that can assist them in the palms of their hands: their cellphone.
Naming their product “M-Pasandaz” (“pasandaz” means savings in Dari), the researchers deployed and evaluated it in Afghanistan—a country where only one in 10 adults have a bank account, and where only one in 25 people actively use an account.
They started their experiment with 949 Roshan employees who were already receiving their salary via mobile money. (Mobile money is a system that allows customers to change currency for e-float, which they can then transfer to any peer on the network or use to purchase goods.) The study involved a broad range of Roshan’s employees working across the country and working in a variety of jobs, including janitors, security guards, and engineers.
Employees could contribute up to 10 percent of their monthly salary into their account. The researchers also randomly assigned participants to receive either a 0 percent, a 25 percent, or a 50 percent matching contribution. These paid out at the end of a six-month trial period. Employees could access their principal at any time, but employees only received employer match after 6 months.
Researchers either randomly “defaulted in” employees to a contribution level of 5 percent or defaulted them out at a contribution of 0. Simply defaulting employees in increased their participation in the plan by 40 percentage points. To achieve a similar level of participation using financial incentives alone, if researchers defaulted employees out, would require providing a 50 percent match.
Over the six-month study, the average participating employee accumulated 38.9 percent of their average monthly salary, or 12,615 Afghanis, and employees without a match as an incentive saved 18 percent of a month’s salary.
To test whether the employees’ experience of having part of their salary directed into a savings wallet created a lasting change to behavior, the researchers asked every participant at the end of the study whether they would like to continue having a portion of their salary directed into the account. Employees who researchers had defaulted in at the start of the study were 25 percent more likely to continue contributing to the account than employees who they defaulted out, suggesting that automatic enrollment had helped employees learn about the benefits of saving.
There are roughly 400 million mobile money users worldwide, many of whom receive salaries or cash transfers, or are regularly involved in transacting goods. This creates a tremendous opportunity for deploying products like M-Pasandaz, particularly in developing countries, where the benefits may be the largest. This takes a deep, important insight from behavioral economics exhibiting that defaults impact behavior, and provides a platform for this insight to be used to increase savings globally.
“There are many barriers to saving, and previous research from high-income countries shows that default enrollment into automatic savings plans is very effective at increasing deposits,” says Tarek Ghani, an assistant professor of strategy at Olin Business School at Washington University in St. Louis.
“Our findings are the first to find similar effects in a low-income country context and suggest that automatic enrollment could have a broader application than previously thought. Combined with the rapid proliferation of mobile money, there is real potential to meet the financial needs of individuals in developing countries.”
The researchers believe theirs was the first study to experimentally compare default savings and incentive effects on the same population for a single product. The study also helped to shed additional light on why such default programs work through an additional set of follow-up experiments aimed at moving employees away from their default contribution level.
The researchers found, among other facets, that a larger employer’s matching contribution isn’t necessary for a successful savings plan. By focusing the experiment on one of the world’s poor countries, they showed how changing behaviors to increase savings—incentivized or not—could be significantly beneficial to its people.
Afghanistan’s per-capita GDP ranks 156th of 175 countries, at $1,877 in US dollars. However, it should be noted that the study group included salaried employees earning the equivalent of $5,415 US. The poorer employees in the sample, though, were comparable to the broader Afghanistan population and showed clear, positive effects from the automatic contributions, the researchers say.
The study appears in the journal American Economic Review.
Additional coauthors are from the University of California, Berkeley, and the University of California, San Diego.