If you want to kick-start your retirement savings but you’re having trouble getting going, try thinking of your new resolution in terms of a ‘fresh start’ date like an upcoming birthday, or the first day of spring, or the start of the new year.
The power of this simple mind hack has just been uncovered by a detailed research study undertaken at four major universities, which involved retirement plan administrators sending out mailings to more than 8,000 people.
Such “fresh start framing… increased cumulative savings contributions over the eight months following the mailing by roughly 25% more than other mailings,” they found.
Hengchen Dai, a finance professor at UCLA and one of the study’s co-authors, explains how the study worked.
Working with plan administrators, the researchers sent out mailings to university faculty and staff encouraging them to increase their retirement plan contributions.
In some of the mailings, the recipients were encouraged to increase their savings right away, or in, say, two months’ time, or six months’ time.
In others, they were encouraged to increase their savings right away, or at a specific “fresh start” date coming up, such as “after your next birthday,” “after the first day of spring,” or “after New Year’s.”
Of those in the first group, 7.6% increased their retirement savings.
But in the second, the figure was 9.8% — a remarkably higher figure.
In other words, just making people think in terms of “fresh starts” and landmark dates makes them more likely to increase their retirement contributions, whether now or later. The researchers were finance professors John Beshears at Harvard, Katherine Milkman at Penn, and Shlomo Benartzi at UCLA in addition to Dai.
The authors say this is the first study to show conclusively the power of this type of mind hack, known as ‘framing,’ for increasing savings.
Why does it work? Arranging a hike in retirement plan savings for a future ‘fresh start’ date is effective for several reasons, the authors conjecture.
Because it will only start at some point in the future, it somehow seems less painful than starting today, they say.
We human beings are irrationally more optimistic about the future after certain fresh start dates, they argue.
And thinking about dates like a new season, or a birthday focuses us more on the big picture, they add.
There is plenty of social science research supporting these arguments, they point out.
Why are we more likely to start a new savings regime, or a new diet, or ‘turn over a new leaf’ in a new year than tomorrow? It’s irrational, but then so are we. The zoologist Jared Diamond points out that human beings are just the third branch of the chimpanzee family, and share 98.4% of our DNA with other chimps. (Some say it may be even more). Genetically we are closer to our fellow chimps than they are to, say, orangutans or gibbons. Oh, and the average human IQ is about 100. So expecting us to be wise or rational is… pretty foolish and irrational.
No wonder we tend to do so many stupid things, including spending money today on total junk and saving too little for the days when we will be old and desperately need it.
And no wonder that it takes a little irrationality to defeat irrationality. Like tricking our chimpanzee brains, by agreeing to hike our 401(k) contributions on, say, the first day of spring.