How can human behavior be shaped to encourage people to do something that results in short-term pain, but provides long-term gain? And what role can mobile technology play?
We all know how difficult saving for the future can be. For those with minimal incomes who sometimes struggle to make ends meet day to day, the challenge is even greater.
That’s the conundrum facing the team behind M-TIBA, a digital platform that, among others, enables people to deposit money specifically for healthcare into their own personal mobile health wallet.
During a talk in Amsterdam in June 2017, Professor Dan Ariely¸ the first Academic Chair of the Joep Lange Institute, discussed how the M-TIBA team is applying behavioural economics to test whether they can encourage users to save for their healthcare needs.
What are the psychological challenges around saving for the future?
Ariely highlighted several psychological challenges that he and the M-TIBA team had to consider when developing their strategy:
Opportunity cost. Encouraging people to save for their healthcare means getting them to think about the opportunity cost. If you spend money today, you won’t be able to spend it on something else tomorrow, and vice versa: to save up for tomorrow, you need to make sacrifices today.
Delayed gratification. Saving is tough. It pitches the concrete against the abstract. Instead of buying that chair today – the one you can see and touch – you’re saving money for some future objective. It means delaying gratification – something humans are usually pretty bad at.
Cost relativity. Our perception of money is relative. Most of us would walk 5 minutes to the next shop to save €5 on a €20 t-shirt. But not so many of us would take the same walk to save €5 on a €1500 Armani suit.
“Why is it different? Because of relativity. When you think about a big amount of money, €5 feels small. When you think about a small amount of money, €5 feels big,” says Ariely.
Pain of paying. People tend to feel more ‘pain’ when the time between consumption and payment is short. That’s why paying for a meal on a credit or debit card, for example – which in effect delays payment – somehow doesn’t ‘hurt’ as much as paying for it in cash, which is immediate.
How can we help people save more for their healthcare?
Some of the behavioural economics strategies used by M-TIBA to address these challenges included:
1. Mental accounting – Like a company allocating expenditure to different budgets, as humans we often allocate money to spend on certain things, like bills or food. In our heads, that money is already accounted for and cannot be accessed for daily purchases.
M-TIBA taps into this same principle. It encourages people to allocate an amount of money to their future healthcare, and mentally remove it from their day-to-day finances.
2. Loss aversion – Losing money has been shown to be a more powerful experience than gaining money. So when M-TIBA offered to boost its users’ savings by 20 per cent, it came up with a clever ploy. Instead of adding to savings at the end of each week, it added the ‘extra’ money at the start of the week – then took it back if users didn’t save the agreed amount.
3. Implementation intention – M-TIBA could only change people’s behavior if it was embedded into their daily lives. So it supplied users with calendars to hang on the wall. Each page of the calendar featured a different ‘chapter’ of an ongoing story, to encourage people to engage with the calendar regularly.
The calendars also had spaces for users to make specific written commitments about how much they intended to save that month and how. Every time users saw the calendar, they were reminded of M-TIBA and their intention to save.
A similar strategy involved a special coin. Users were encouraged to scratch the coin to indicate whether they had saved that week or not. This physical representation of commitment, shared with their families, proved to be a strong motivator towards saving.
4. Ease of access – While they were saving, people needed to be able to access their money for emergencies. But there was a risk that, for people struggling to get by, even small things could be seen as ‘an emergency’, and so despite their best intentions, the savings would be spent.
Ariely and his team therefore designed a system where it was easy to put money in to the M-TIBA account (you could text it in), but it was hard to get it out. To withdraw funds, users had to travel to their bank, fill out a form, wait for approval, then travel home – a process probably taking four or five hours.
Ariely says: “We wanted people to have access when they had a real emergency, but we didn’t want everything to be an emergency.”
5. Emotional encouragement – M-TIBA users were sent weekly text messages to encourage them to save. Sometimes the messages were written as though they were coming from their children. Users knew the messages weren’t really sent by their children, but it was an emotionally-driven reminder about why they were saving. And it worked. Sending text messages was shown to increase the amount people saved. The messages from their children increased it even more.
By understanding the challenges facing M-TIBA users and using behavioral economics strategies like these to address them, Ariely and his team are helping to change people’s daily lives to encourage them to think better, save more and, ultimately, benefit from better healthcare.