Behavioural economics: encouraging savings and collections responses Antony Elliott OBE, FCIB
Today’s agenda • How to influence financial well-being • Savings – credit unions building good habits • Collections – motivating good responses
Current Financial Well-being - How to get it
Current Financial Well-being - How to get it Plan for paying down debts Less unsecured borrowing Managing Credit Think it’s less than average Reducing credit card balance and payment method “I hate to borrow, I would much rather save up in advance”
Current Financial Well-being - How to get it Frequency Active Saving Number of types save for (expected and unexpected)
Change the Situation Automatic System Reflective System • Controlled • Uncontrolled • Effortful • Effortless • Rule-based • Associative • Slow • Fast • Conscious • Unconscious • Rational • Affective
Change the Situation It turns rns out that at the e envir environm onmen ental al ef effec ects on beha ehaviou iour are e a lot stronger nger than n mo most peo eople le exp expec ect Daniel Kahneman Nobel Laureate
Change the Situation Schiphol Airport Lake Shore Drive in Chicago Image of black fly etched 36% fewer crashes in the onto urinals led to 6 months after the lines ‘spillage’ declining by were painted >80%
Change the Situation • Mindspace report published in March 2010 • Operating framework for applying behavioural insight to public policy • Behavioural Insights Team established in the Prime Minister’s Office
MINDSPACE * Messenger Incentives Norms Defaults Saliency Priming Affect Commitment Ego * Dolan et al (2012). Influencing behaviour: The MINDSPACE way. Journal of Economic Psychology, 33 , 264-277.
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Report – “Save while you borrow: credit unions creating good habits” - Report utilises result of 7 surveys with 2172 members - Variety of credit unions (nationally and industry) - Quantitative and qualitative results - Quantification of “cost” to members
SAVE AS YOU BORROW: THREE-STEP APPROACH
How helpful is/was it to be saving at the same time as paying off your loan?
Reasons given for finding SAYB helpful
BEFORE AND AFTER
Before and after compared with income groups
Savings habits: how has SAYB helped?
Debt Collection Letters - Original letter and eight variations tested - Minimum of 4,000 per letter, over 32,000 in total - Randomized sample - Implemented in live environment
Original wording The balance of £224 is due for repayment. Payment may be made by card securely online at www.xxx.co.uk or by telephone on 0844 XXX XXX or if your circumstances prevent you from doing this we require you to contact us to discuss a reasonable and realistic payment arrangement. If you are unsure how to settle this debt you should telephone one of our Collections Advisors who will discuss the options available to repay this amount and the payment methods available.
Simplified Wording/Tick List Dear [NAME] Reference Number: [REF] Amount Due: £ [O/S BAL] Our Client: [CLIENT - PRODUCT] Client Reference Number: [CLIENT REF] Password: [PASSWORD] Original Creditor Reference: [ORIG CRED REF] Intro para You can choose from the following actions. If you can afford to repay the outstanding balance, you can make a repayment by card: ✓ Online at www.xxx/payonline ✓ By phone on [TEAM TELEPHONE] If you are unsure what to do, wish to discuss a repayment arrangement, or would like to repay using another repayment method, you can: ✓ Call us on [TEAM TELEPHONE] ✓ Contact us at www.xxx.co.uk/contact Yours sincerely
Response rate improvement of: 2%!
Three interventions with seven combinations 1. Norm Surprise Positive response from customers calling 2. Salient Contact Remove payment info, Information making contact salient 3. Ego-orientated Pointing out active Action choice not to respond
Response rate improvement of: 23% to 57%
Promises to pay improvement of: 25% to 102%
Contact us when you want to know more: Antony.Elliott@fairbanking.org.uk Ivo.Vlaev@wbs.ac.uk 07850 304845
Thank You
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