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Financial ‘shock therapy’ may help people save for unexpected expenses – study

When it comes to getting households to save for unforeseen expenses, financial shock therapy may be just the ticket. That’s according to a Competition and Consumer Protection Commission study using behavioural economics.

The trial, designed for the commission by the Economic and Social Research Institute (ESRI) and tested against Bank of Ireland customers, found that consumers who were sent emails with easy-to-understand infographics illustrating shock statistics, such as six in 10 people face unexpected expenses ever year, are 20 per cent more likely to open a savings account than those bombarded by standard marketing material.

The study also found that reframing “rainy day fund” messaging to “unexpected expenses” in savings account application forms helped consumers set savings goals.

It concluded, too, that providing consumers with interactive calculators and options to make flexible pledges to themselves to withdraw funds only for specific reasons were more inclined to save regularly.

“Every year, most people face at least one unexpected financial shock – such as the need to spend money on repairing their car or their boiler,” said Jeremy Godfrey, chairperson of the commission. “This ground-breaking research … has shown that many more customers will choose to save for the unexpected if financial institutions use behavioural insights to design their marketing materials and their application process. We encourage other financial institutions to make use of this research so that more Irish consumers can weather financial shocks without going into debt.”

Nudges and boosts

The six-in-10 statistic resulted from a December 2020 survey of 1,000 adults in Ireland, who were asked to list unexpected expenses that cropped up during the year.

The trial consisted of two six-month field trials run at the same time. The first involved emails being sent to more than 160,000 Bank of Ireland customers testing both “nudge” and “boost” interventions.


Nudges are aimed at steering people in a particular direction. An example would be defaulting workers into pension plans, which leaves them free to opt out but increases plan uptake.

Boosts, on the other hand, improve people’s competence to make choices that align with their own goals. Savings calculators are an example of a boost, according to the commission’s report.

The second element of the study was into customers who looked at setting up an online savings account during the period with the bank.

“A savings account application form with a combination of evidence-based nudges and boosts – such as changing the order of questions and adding a calculator tool – led to an increase of 27-40 per cent in account openings among customers, relative to a form already in the market,” the report found.

“Moreover, the behaviourally informed changes had stronger effects on low-income customers likely to be most vulnerable to high-cost borrowing if faced with a financial shock,” it concluded.

Gavin Kelly, chief executive of Bank of Ireland’s Retail Ireland division, said that the change in short-term saving habits among customers contacted as part of the trail was “very encouraging”.

“We know that one in four people would not have enough in savings to meet their financial commitments for more than a month. And that’s a problem,” he said. “Being prepared for the unexpected and able to cope with financial shocks is a key driver of financial wellbeing.

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