I thought I would highlight some recent behavioral economics resources that caught my eye recently:

• Article: How Behavioral Economics Can Help You Retire Rich (Bloomberg article). Have your students read the article and ask them ONE action they will take based on these findings. Here are some of the interesting experiments described:
  • How to get people to save more with their tax refunds: “In one experiment, a control group of users was sent a simple text after a refund showed up in checking. It asked what percentage of the refund they’d like to save. The answer: an average of 10 percent. The experimental group was messaged before getting any refund check. Its text said that members might get a tax refund and asked what percentage of it they’d want to save. They answered 15 percent.”
  • How the 401(k) structure encourages savings: “A 401(k) plan is a pre-commitment device. “Imagine a world in which you didn’t have 401(k)s and every month you decided how much to save,” Ariely said. “It would be a terrible world, from a savings perspective.” Even better are automated programs that bump up contributions into 401(k)s. Fidelity Investments did some math on that. They used the example of a 25-year-old employee making $40,000 and getting annual raises of 1.5 percent after inflation. If she bumped up the percent of salary going into a 401(k) plan by 1 percent every year for 12 years, she’d have $1,930 more (PDF) in monthly retirement income.

• Video: Behavioral Finance For Everyday Investors: Loss Aversion? (Franklin Templeton)
  • What is loss aversion, in your own words?
  • Describe one or two situations where you have experienced this in your life.
  • How does this impact investors? Any ideas on how to overcome it?

• Article: Savings app start-up Qapital raises $12 million in funding (American Banker); have students research the app and answer such questions as 1) How do they make money? 2) Why do you think it is so popular 3) Do you think their method works in getting people to save more? Why?

Like other consumer-facing apps, Qapital uses behavioral economics in hopes to inspire its users to build a savings habit by tweaking their everyday actions. A user can set goals and rules so the app automatically makes a small savings transfer every time the user buys a coffee, for instance. “It’s amazing how things change when people are clear on their goals and can visualize achieving their goals,” said George Friedman, co-founder and chief executive of Qapital in a press release announcing the funding.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.