Reframing Can Help Clients Save More

Sometimes advisors have a hard time understanding why their clients aren’t understanding and acting upon important issues the way the advisor views those issues.  This disconnect can be incredibly frustrating, especially when the problem and the solution seem so obvious to the advisor.  A recent study helps shed a little light on how something as simple as reframing the issue can help get the advisor and the client on the same page.

Voya Financial, Inc. has shared new findings from research conducted in association with the Voya Behavioral Finance Institute for Innovation. In a paper called “Reducing Savings Gaps Through Pennies Versus Percent Framing,” researchers from Carnegie Mellon University, Cornell University, and UCLA have published results from a field study that involved more than 2,200 working persons across dozens of organizations. The study looks at an opportunity to help address the longstanding retirement savings gaps that exist across many demographic factors, including income, race, and gender. More specifically, the results of the study find that a simple change in the way information is presented − or how the savings rate itself is framed − leads to a significant boost in savings behavior among lower-income employees.

When enrolling in a workplace savings plan, most people today are asked to choose a retirement savings rate that is displayed as a percentage of his or her paycheck. Broader research, however, suggests that a lot of people struggle to calculate percentages, a challenge that grows serious when someone is aiming to choose a rate that will help define his or her retirement savings. To help employees better understand the benefits of saving for retirement, Voya’s study reviewed what would happen if, instead of featuring a worker’s savings rate as a percentage, it was described in terms of pennies-per-dollar earned. For example, a 7% savings rate would be expressed as saving “7 pennies” for every dollar earned.

“While the industry has seen great success helping people save more for their retirement through ‘auto’ features like automatic enrollment and auto-escalation, we know that these tools are not feasible for all plans or individuals,” said Charlie Nelson, Vice Chairman and Chief Growth Officer at Voya Financial. “By leveraging data and research such as that presented through Voya’s Behavioral Finance Institute for Innovation, we can help provide greater progress in reducing savings gaps − and through a relatively simple and cost-effective approach for employers.”

In this study, workers were randomly assigned to two different conditions: A “typical” retirement enrollment screen with savings shown as the percentage of the person’s salary, or a “pennies” condition with savings shown as a specific number of pennies for every dollar earned. This change in how the information was presented had a significant impact on savings behavior, especially for lower-income workers with an average income of $32,000. In fact, the study found that workers in the percentage condition had an average savings rate of 6.9%, while those in the pennies condition had an average savings rate of 8.0%. An interesting side note is that this savings rate is almost as high as the savings rate of those participants in the highest income group (a mean salary of $115,000), who saved 8.5% of their salary.

According to Shlomo Benartzi, professor emeritus, UCLA Anderson School of Management, and a senior academic advisor to the Voya Behavioral Finance Institute for Innovation, behavioral economics teaches that the most powerful tool to improve retirement outcomes for all employees is to periodically re-enroll them with appropriate defaults. Professor Benartzi, however, notes that we also need to expand the behavioral economics toolkit to address situations in which auto-features are not feasible.

“In this study, we showed how reframing saving decisions as pennies-per-dollar earned, instead of the typical percent of pay, can have a meaningful impact on future retirement savings,” added Professor Benartzi. “As a result, this behavioral intervention has the potential to boost retirement income by almost 20% if implemented throughout the entire accumulation phase of one’s career. More importantly, it reduces long standing societal gaps in savings behavior, making it easier for lower-income employees to better prepare for retirement. Over time, helping people save just a few pennies more can add up to thousands of dollars of retirement security.”

While the findings of this study focused on retirement savings, Voya points out in a press release that employers have the opportunity to consider the “pennies” framing for other possible savings accounts, such as emergency savings, health savings accounts, and employee benefits. For example, an emergency fund could be built through a combination of pennies framing and gradual escalation. Workers could be asked to save one penny out of every dollar earned for emergencies this year, two pennies next year, and so on until they have built up a viable reserve fund. Another approach might make it easier for workers to save a dime for every dollar they earn, with an automatic allocation of those funds to certain accounts. For instance, employers could ask a participant to allocate six pennies for retirement, two pennies for emergencies, and two more pennies for health savings.

“At Voya, and through our behavioral finance research, we want to ensure all individuals are given the opportunity to achieve financial security,” said Rick Mason, director of the Voya Behavioral Finance Institute for Innovation, and senior research fellow, Carnegie Mellon University. “We encourage employers and advisors to explore the potential benefits that can come with a deeper understanding of behavioral architecture and the long-term impact it can have to addressing the many savings gaps that exist today.”

 In a world where too many clients struggle to build savings, this approach is certainly worth the advisor’s consideration.


Charles K. Hirsch, CLU, is the president of Hirsch Communications Consulting, LLC, a communications consulting operation in Florissant, MO. For many years, Chuck was the editor and publisher of Life Insurance Selling magazine and has published several of the leading life insurance industry magazines. He continues to contribute articles on a regular basis to industry publications, in addition to providing a wide range of writing, editing, content development, and marketing services through his firm. He is a regular contributor to NAILBA Now e-Newsletter as well as to Perspectives magazine.