{"id":15639,"date":"2020-09-26T15:42:00","date_gmt":"2020-09-26T19:42:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=15639"},"modified":"2020-10-12T13:11:09","modified_gmt":"2020-10-12T17:11:09","slug":"automatic-savings","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/automatic-savings\/","title":{"rendered":"Automatic Savings: Save More With Less Effort"},"content":{"rendered":"\n<p>What is an automatic savings program? Why is enrolling in automatic savings a good choice?<\/p>\n\n\n\n<p>Automatic savings is a strategy that makes saving money a passive activity. By not forcing yourself to remember and act in order to save, you encourage greater savings over a period of time.<\/p>\n\n\n\n<p>Read more about automatic savings and the <a href=\"https:\/\/www.shortform.com\/blog\/libertarian-paternalism\/\">libertarian paternalism<\/a> principles applied.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\">What Is Automatic Savings?<\/h2>\n\n\n\n<p>Numerous studies have shown that employees are phenomenally poor at taking advantage of their employers\u2019 retirement plans. One UK study concerning retirement plans that were fully funded by the employer\u2014in other words, <em>plans that didn\u2019t require the employees to pay anything\u2014<\/em>found that only 51% of employees signed up. That\u2019s tantamount to refusing free money!&nbsp;<\/p>\n\n\n\n<p>Although there\u2019s debate among economists about <em>how much <\/em>people need to save for retirement, many workers believe they\u2019re saving too little: in one study, 68% of enrollees in a 401(k) believed their savings rate was too low.<strong> Because workers tend to <\/strong><strong><em>want <\/em><\/strong><strong>to save more but fail to do so\u2014due to present financial pressures or diversions like temptation\u2014a nudge here adheres to the noncoercive principles of libertarian paternalism<\/strong>.<\/p>\n\n\n\n<p>One such nudge is to enroll workers in 401(k) plans automatically\u2014<strong>in other words, to make 401(k) enrollment the <em>default option<\/em><\/strong> and encourage automatic savings. One study found that, under an \u201copt-in\u201d approach\u2014meaning employees have to <em>choose <\/em>to enroll\u2014participation in a particular retirement plan was 20% three months after hire, growing to 65% within thirty-six months. <strong>When the plan adopted automatic enrollment, new-employee enrollment jumped to 90% and grew to 96% within thirty-six months<\/strong>.&nbsp;<\/p>\n\n\n\n<p>Another option in this vein is to make enrollment an \u201cactive decision\u201d\u2014that is, requiring new hires to check \u201cyes\u201d or \u201cno\u201d to a savings plan before receiving a paycheck\u2014<strong>or simply making the enrollment process easier<\/strong>. In one study, when employees were presented with a \u201cyes\u201d or \u201cno\u201d decision to enroll in a plan with a default contribution rate and asset allocation, participation during the first four months of employment increased from 9% to 34%.<\/p>\n\n\n\n<p>(To get already-enrolled employees to save <em>more<\/em>, firms might adjust their matching formulas: rather than match 50% up to 6% of the employee\u2019s salary, they might match 30% up to 10%.)<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Save More Tomorrow<\/strong><\/h3>\n\n\n\n<p><strong>Another way to nudge workers, especially younger ones, to increase their automatic savings rate is to adopt a program of escalating contribution percentages<\/strong>.&nbsp;<\/p>\n\n\n\n<p>Developed by Thaler and another behavioral economist named Shlomo Benartzi, the Save More Tomorrow program ties contribution increases to pay raises. With each raise, an employee\u2019s contribution to his or her retirement plan increases by a predetermined percentage.<\/p>\n\n\n\n<p>In the pilot implementation of a Save More Tomorrow plan in 1998, researchers found that a large majority\u2014nearly 80%\u2014of employees who were resistant to increasing their savings rate immediately were amenable to the Save More Tomorrow option. <strong>As it turned out, the workers who opted into the program ended up saving the <\/strong><strong><em>most <\/em><\/strong><strong>among their colleagues; and when they maxed out their allowable contribution under the terms of the plan, they simply left their contribution at that maximum rate (the human tendency to inertia at work!).<\/strong><\/p>\n\n\n\n<p>Of course, the most effective way to nudge workers toward a Save More Tomorrow program is to automatically enroll people in it. The Safelite Group was the first to enroll its employees in a Save More Tomorrow automatic savings program, and it saw only 6% opt out after its first year.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is an automatic savings program? Why is enrolling in automatic savings a good choice? Automatic savings is a strategy that makes saving money a passive activity. By not forcing yourself to remember and act in order to save, you encourage greater savings over a period of time. Read more about automatic savings and the libertarian paternalism principles applied.<\/p>\n","protected":false},"author":6,"featured_media":15924,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,42,43],"tags":[132],"class_list":["post-15639","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money","category-motivation","category-self-improvement","tag-nudge","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Automatic Savings: Save More With Less Effort - Shortform Books<\/title>\n<meta name=\"description\" content=\"Why do you struggle to save? It could be distraction, temptation to spend elsewhere, or laziness. Automatic savings is the solution. See how.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shortform.com\/blog\/automatic-savings\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Automatic Savings: Save More With Less Effort\" \/>\n<meta property=\"og:description\" content=\"Why do you struggle to save? It could be distraction, temptation to spend elsewhere, or laziness. Automatic savings is the solution. See how.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shortform.com\/blog\/automatic-savings\/\" \/>\n<meta property=\"og:site_name\" content=\"Shortform Books\" \/>\n<meta property=\"article:published_time\" content=\"2020-09-26T19:42:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-10-12T17:11:09+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2020\/10\/Nudge-automatic-savings-scaled.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"1706\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Rina Shah\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Rina Shah\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.shortform.com\/blog\/automatic-savings\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/automatic-savings\/\"},\"author\":{\"name\":\"Rina Shah\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/d07435826f13a8f422d5d333dceac287\"},\"headline\":\"Automatic Savings: Save More With Less Effort\",\"datePublished\":\"2020-09-26T19:42:00+00:00\",\"dateModified\":\"2020-10-12T17:11:09+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/automatic-savings\/\"},\"wordCount\":576,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/automatic-savings\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2020\/10\/Nudge-automatic-savings-scaled.jpg\",\"keywords\":[\"Nudge\"],\"articleSection\":[\"Money\",\"Motivation\",\"Self-Improvement\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.shortform.com\/blog\/automatic-savings\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.shortform.com\/blog\/automatic-savings\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/automatic-savings\/\",\"name\":\"Automatic Savings: Save More With Less Effort - Shortform Books\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/automatic-savings\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/automatic-savings\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2020\/10\/Nudge-automatic-savings-scaled.jpg\",\"datePublished\":\"2020-09-26T19:42:00+00:00\",\"dateModified\":\"2020-10-12T17:11:09+00:00\",\"description\":\"Why do you struggle to save? 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