The only thing more difficult than getting a client into the savings habit is getting her to save more.
“There’s always a big discrepancy between what people plan to do and what they do,” says Dilip Soman, Professor of Marketing at the Rotman School of Management, University of Toronto. “The best thing advisors can do is provide simple interventions to help them execute their plans.”
To make saving easy, streamline communications and create a sense of urgency.
Make savings easy
Many saving problems have nothing to do with planning. “Seventy-seven per cent of Canadians say they want to save more and many even have plans for saving more, but only about 13% report having achieved those goals,” says Soman.
In studies conducted in rural India—a largely cash-based economy—Soman found the simple act of earmarking funds for a single savings goal can make all the difference. His team gave Indian farmers a paper envelope in which to save 1% or 2% of their biweekly incomes toward their children’s educations. Putting cash in a sealed envelope made them think twice about spending it.
Here at home, encourage clients to earmark funds for one particular savings goal at a time, and exact penalties if they tap the savings too early.
Giving clients too many choices may cause them to give up.
“If an advisor tells me I should save for retirement and my children’s education, in my head I think every time I put dollars into one bucket, I’m taking something away from the other bucket.” Soman suggests tricking the irrational human psyche to make savings goals seem less complex.
In the India studies, he used a flow chart that showed regardless of which savings box the money goes into—retirement, education or travel—it all ultimately flowed into a single pot. (Many flow charts show a single savings box at the top flowing into several buckets.)
Just removing the notion that the goals were competing increased uptake of savings activity.
Giving people financial goals sequentially, rather than simultaneously, is another method.
Clients procrastinate. So advisors should create a sense of urgency around saving.
The language an advisor uses when discussing the future can make all the difference. In one study, Soman found simply committing clients to saving “this year” rather than “next month” increased uptake.
And rather than asking clients about their goals 10 years from now, ask where they see themselves on February 20, 2023.
“While the 10-year duration is abstract, the specific date makes it more concrete and real.”
Visuals can also help. In the India studies, some of the participating farmers were given plain envelopes for education savings, while others had photos of their children printed on the outside.
“If they wanted to spend the funds, they actually had to rip through the children’s pictures,” explains Soman. “In that experiment, not a single person broke into the envelope [with a photo] during the six-month study period.”
Brynna Leslie is an Ottawa-based financial writer.