Financial 'nudges' meant to encourage better financial habits often appear to work at first, but recent studies show that some aren't as effective as...
A popular way to help people with their finances is by gently prodding them to make better decisions.
"Nudges are not a panacea," Jialan Wang, an associate professor of finance at the University of Illinois Urbana-Champaign, told Yahoo Finance. "But that doesn't mean that a smartly designed nudge can't help people on average."Financial"nudges" appear to work at first, but a handful of recent studies show that some aren't nearly as effective as promised in the long term.
At the outset, the results seemed promising. More people signed up for the automatic fixed amount payment if they were not offered a minimum payment option. But after seven months, it became clear that the fixed-amount crowd didn't fare much better. The legislation followed research similar to that of James Choi, a professor of finance at the Yale School of Management. In 2002, he and his colleagues published one of the first papers showing that auto-enrollment had a big effect on 401 participation rates and contribution rates. This year, Choi and his co-authors revisited those findings.
"You're gonna start off back at square one," Choi said. "It is a big part of the story of why auto-escalation in the job environment that Americans live in not having as big of an effect as we thought initially." "Any sort of nudges for savings may not have that big of an effect for high-income people," Choukhmane said, "because all they're going to do is shift money from one account to the other rather than really change their spending patterns."So why don't financial nudges work as intended? It's not like people want to stay in debt or not save for retirement.
Jialan Wang Credit Cards Retirement Plan Automatic Payment Nudges
Canada Latest News, Canada Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Financial stability, community, investing: Best of Financial FreestyleIn this episode of 'Financial Freestyle with Ross Mac,' Ross Mac takes a look back at some noteworthy moments from the show. First, TIAA Chief Administrative...
Read more »
CEO succession plans loom at TD as it takes financial hit in money laundering probeThe bank said it is setting aside US$2.6 billion for expected fines from the U.S. investigation
Read more »
Financial close achieved on Blueprint Phase II Schools ProjectCanada's construction news
Read more »
Trintech's owners explore $2 billion sale of financial software maker, sources sayPrivate equity firms Summit Partners and Vista Equity Partners are exploring a potential sale of Trintech that could value the financial software provider at...
Read more »
How to build a financial fitness routine, just like exercisingPlus, weddings vs. home down payments, and 25 timeless personal finance books
Read more »
3 financial literacy tips everyone can useFormer NFL player Brandon Copeland drew from his own financial experience to create 'Life 101,' a course at the University of Pennsylvania that addresses all...
Read more »