What We’re Reading at Sawa

New research on personality-matched savings goals, money anthropomorphism, and more?

Here at Sawa we’re always reading what’s new in behavioral science research. These four new studies —?on personality-matched savings goals, anthropomorphizing money, turning tax refunds into emergency savings, and the impact homeownership has on our stress — caught our eyes this week.

Nice goal, but does it match your personality?

Personality-matched savings goals make it 3.5X more likely for a person to save $100, according to researchers Sandra Matz and Robert Farrokhnia of Columbia University, and their colleague Joe Gladstone of the University of Colorado at Boulder.?

Many of us have the same goal —?to save money for the future — but it’s hard to overcome our present bias and self-regulate enough to trade the tangible costs of putting money aside today in favor of the uncertain and abstract benefits of saving we reap later. The research team wondered if setting the right kind of goals might help close the intention-action gap for saving money.?

Could our personality traits help us overcome that hurdle? For example, would more agreeable people be more motivated to reach a pro-social goal like “saving money to help provide for family members” while a conscientious person who tends to plan ahead further into the future might be more motivated by a goal like “save more for retirement”??

Matz, Gladstone, and Farrokhnia found that yes, yes it does. In a study of 6,056 participants all trying to save $100 in one month, those who were matched with goals that fit their personality were 3.57X more likely to hit the $100 savings target. Similarly, in a study of 2,447 participants in the UK, those whose savings goals fit their personality traits had larger nest eggs across the board.?

Can money clip art make you want to save more?

Yes, according to researchers Lili Wang and Xinyue Zhou of Zhejiang University and Sara Kim of The University of Hong Kong. The trio found that money anthropomorphism “can enhance both saving intention and real saving behavior.”?

Money anthropomorphism manipulations, such as inserting money clip art or using first-perception language to describe money, increased real saving behavior by 18% and evoked “a tendency to protect money by putting it into safer, low-risk savings accounts.” Notably, that positive money anthropomorphism that disappeared when the savings vehicle was considered risky.

Why? Because “humanized money is considered to be capable of experiences such as pain or joy (perception of experiences) and, as a result, is more vulnerable and in need of protection (perception of vulnerability).” That is, when we think about money having human characteristics, we’re more likely to want to put it in “a safe place.”?

Would you defer your tax refund 6 months… for a 50% match?

For many, tax refunds are a savings mechanism, their refund a windfall. Researchers Mathieu Despard of UNC-Greensboro, Stephen Roll and Michal Grinstein-Weiss of Washington University in St. Louis, Bradley Hardy of Georgetown University, and Jane Oliphant of FirstPic, Inc, wondered if behavioral nudges in tax preparation software, in this case TurboTax, could encourage tax-filers to funnel their refund into emergency savings.?

They were able to increase tax refunds savings: they achieved a small effect size (0.12–0.14) at a low savings rate by modulating choice architecture and passive or active emergency savings messages. When they added hypothetical financial incentives to the equation, savings rates jumped from 16% to above 70%. With a 25% match, the savings rate was 71%. With a 50% match, the savings rate was 80%.?

This isn’t terribly surprising —?these matches jump the rate of return for a 6-month investment to very high levels. We take this as a marker that people understand interest rates and rates of return. We’re curious how people would respond to an offer of a high-return investment in a different setting.?

The researchers concluded with this question, “Still, a broader question remains: is refund saving something policy makers should encourage? As noted earlier, lower-income tax filers use their refunds for a variety of reasons that may make more financial sense.” At Sawa, we believe that the broad recommendation to build a large emergency fund is not universally great advice and that other financial choices may better serve people in both the short and long terms.?

Does homeownership make you less stressed?

In a systematic literature review of 59 peer-reviewed journal papers, researchers Sara Alidoust and Wei Huang of the University of Queensland found that owning a home was correlated with overall better well-being and less stress.?

Compared to renters, “homeowners tended to have less stress and reported better overall, interpersonal, community, occupational, economic and psychological well-being” as well as better mental health. They felt more in charge of their own life and rated themselves higher in overall general health, community, and life satisfaction. Understandably, homeowners who owned their homes outright reported even higher overall well-being than mortgage holders or renters.?

Our take

If you’re a regular reader, it’ll come as no surprise that at Sawa we’re always on the lookout for applicable behavioral science research. We appreciate that we can make decisions informed by research as we continue to build an on-ramp to lasting financial wealth.?

We join with the researchers who are pushing back on broadly placed financial goals, such as the 6-month emergency savings fund, that many people have but have difficulty achieving.? Those goals may not be in everyone’s best interest, and in fact may be doing more harm than good. What if, instead of everyone building a personal emergency fund, we worked together to create a community-powered fund that everyone had immediate access to, relieving the Sisyphean burden from millions of people and replacing it with the support of knowing we’re not alone in this??

At Sawa, we use the power of community to make savings goals more achievable and are strong proponents of homeownership. We realize that?many people feel like homeownership is out of their reach, but it is one of the vehicles for building financial security and intergenerational wealth that can be transformational. What if qualifying for a mortgage or getting together a down payment didn’t feel like impossibilities??