Saving money can be hard to do, especially given the current economic climate and falling real wages. It can be difficult emotionally, too, with a recent report published by the Money Advice Service finding that many people prefer to spend their money “more on the here and now than on planning for the future.” But with the right help, maybe saving can even be fun.
Picture the scene: you are browsing online just about to purchase a t-shirt. You don’t actually really need another t-shirt, after all it looks exactly like all the others in your closet, but it is 30% off, so for £10 why not? But just before your online checkout, a message pops up asking whether you’d like to add £10 - instead of (or in addition to) making the purchase - to a savings account named “new computer”, “honeymoon fund”, or perhaps more important but somewhat less motivating “unforeseen emergencies”. Or, as you are waiting for the barista to hand you your coffee you eye up the croissants on the café counter. It looks tasty, so you consider adding it to your order, but instead, you use your phone to transfer the £2 you would have spent on the croissant into your savings pot designated for a gourmet foodie weekend in Paris.
This is what ImpulseSave, a small Boston-based organisation is helping savers to do. Their motto, “go on a saving spree!” reflects its basic function of replacing spending with saving. According to this article, ImpulseSave allows you to transfer money into a savings account via text or app, and provides prompts to save while you are shopping online. Similar to some other savings tools, your savings account is named for a specific goal, so you always have in mind what your savings is building towards. Smarty Pig, another savings tool, also uses named accounts to keep the goal salient, but rather than making impulse saves, you set up automatic transfers from an existing account. How it differs from more conventional bank accounts is that you can share your progress online via various social media and friends or family can actually contribute to your savings pot to help you towards your goal.
The Social Brain Centre has argued elsewhere that saving money can be hugely beneficial to people; having a financial buffer can influence upward social mobility, effective decision making, and psychological wellbeing. But despite its benefits, many people find it hard to save.
So what do savings tools like ImpulseSave and SmartyPig offer to help people save more, that more traditional tools such as budget planners, while helpful, don’t seem to provide? Traditional tools assume that as long as people understand their incomings and outgoings, they will behave in such a way as to stay within their means. But just knowing the budget, while necessary, is not sufficient for many people to actually achieve their savings goals. Instead, we are often side-tracked by impulse purchases (the ImpulseSave website cites a staggering 15-20% of our take home pay is spent on impulse purchases “that we don’t need or even remember buying”!), short-sightedness, or lack of social support.
But just knowing the budget, while necessary, is not sufficient for many people actually achieve their savings goals.
The former tools, however, use insight about human nature and what drives our behaviour to help us (once we know our budget) stick to our savings goals. For example, with such busy lifestyles and our tendency to conserve mental energy, we are more likely to do something the easier it is to do. These tools make saving easy, either through automatic transfers or via simple digital tools. By naming the accounts, this brings our savings goals to the front of our attention, and helps keep us motivated by reminding us what we are working towards, even if that is to be spared the stress and anxiety of an unexpected expense (think a broken boiler or car repairs). And the social aspects of these tools may improve the motivation to save by evoking the desire to remain consistent with your publicly stated commitments, and also perhaps in some way by changing social norms around discussing openly what may be still somewhat of a taboo subject.
This is not to say that financial literacy is not important, but rather that beyond learning how to budget we may need some extra help along the way to achieve our savings goals. Tools like those discussed above seem to using behavioural insight to reposition saving from being something onerous to being something fun. So go ahead and try going on a saving spree, and comment below; we'd love to hear how it goes.
Nathalie Spencer is a Senior Researcher in the RSA’s Social Brain Centre.