Saving More for Retirement: All It Takes is a Nudge

Summary

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WSJ Your Money Briefing: "Saving More for Retirement: All It Takes is a Nudge"

Date: August 30, 2017
Host: Charlie Turner
Guest: Francesca Fontana (Wall Street Journal)

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Episode Overview

This episode explores how simple "nudges" from employers can significantly increase employees' retirement savings. Drawing on recent research involving North Carolina public employees, the discussion highlights America's staggering lack of retirement savings and the effectiveness of behavioral interventions in encouraging better financial decisions.

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Key Discussion Points & Insights

Research on Behavioral Nudges ([00:42]–[02:18])

• Francesca Fontana describes a 2014 study by North Carolina State University:
  • The retirement division sent email "nudges" to older public employees participating in supplemental savings programs.
  • These nudges were designed to prompt workers to reconsider and ideally increase their retirement contributions.
• Key Finding:
  • Workers who got the nudge emails increased their retirement contributions at a 2.8% rate, compared to 1.8% in the control group.
  • "It was a small but significant change." – Francesca Fontana [02:16]

Behavioral Economics: The Power of a Nudge ([02:18]–[03:03])

• Nudges, in behavioral economics, are subtle prompts to encourage people to make beneficial changes without direct intervention.
• Previous studies have proven nudges can alter behaviors in other areas, such as chronic disease management.
• Fontana notes, "...These nudges are basically seen in behavioral economics as a way to, as the term suggests, nudge someone in a certain direction. So this sort of indirect way to lead someone to a certain action or to change their behavior." [02:29]

Scope and Target of the Study ([03:03]–[03:37])

• The study included 14,710 North Carolina state workers, ages 50–69.
• This group was chosen because older workers are seen as more "set in their ways" and harder to persuade.
• "They targeted this demographic of older workers because they're seen set in their ways and harder to nudge toward a specific behavior." – Francesca Fontana [03:27]

America’s Retirement Savings Crisis ([03:37]–[04:18])

• The episode cites alarming data on retirement savings:
  • Median retirement account balance for all working-age U.S. households: $3,000
  • Median for near-retirement households: $12,000
  • Experts recommend accumulating 8–11 times annual income before retirement.
• "...the numbers were absolute stunners to me. Why don't you tell me what they are?" – Charlie Turner [03:37]
• "There's obviously a really big difference between what people are telling workers to do and what they're actually doing." – Francesca Fontana [04:12]

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Notable Quotes & Memorable Moments

• "If you think that you're not saving enough for retirement, it may not be totally your fault."
  — Charlie Turner [00:42]
• "Workers who received the emails were more likely to change their contributions, increasing them at a rate of 2.8% in the short term compared to 1.8% of the control group. So it was a small but significant change."
  — Francesca Fontana [02:02]
• "The median retirement account balance for all working age households in America today is only $3,000. And for near retirement households, it's not much more. It's $12,000."
  — Francesca Fontana [03:49]
• "Sounds like workers need a lot of encouragement."
  — Charlie Turner [04:18]

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Timestamps for Important Segments

• [00:42] Introduction to the retirement savings crisis and behavioral nudging
• [01:18] Francesca Fontana details the retirement nudge study
• [02:02] Specific findings: 2.8% vs 1.8% contribution increase
• [02:29] Discussion of nudges in behavioral economics
• [03:18] Details on study participants and demographic
• [03:48] Shocking median retirement account statistics
• [04:18] Host’s reaction and episode wrap-up

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Summary

The episode shines a light on America's looming retirement savings shortfall and suggests that simple, targeted behavioral interventions ("nudges") by employers can produce measurable improvements—even among harder-to-motivate, older employees. While the increase may seem modest, it's significant given the scale of the issue and the inertia prevalent in retirement savings behaviors. The discussion stresses the importance of ongoing encouragement and the need for greater awareness about the realities of retirement preparation.

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Transcript

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Advocate for Durbin Marshall Bill]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Advocate for Durbin Marshall Bill]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition. This is yous Money Matters from the Wall Street Journal.

[Charlie Turner]

Welcome to youo Money Matters. I'm Charlie Turner in New York. If you think that you're not saving enough for retirement, it may not be totally your fault. The Wall Street Journal says there is new evidence that employers can help persuade even their most stubborn employees to save more for retirement. That's good news because as we'll the amount that American households have saved up for retirement on average is shockingly low. Joining us is the Wall Street Journal's Francesca Fontana. So, Francesca, this was a study involving the state of North Carolina's retirement division. Why don't you tell us about it?

[Francesca Fontana]

Absolutely. In 2014, some scholars at North Carolina State University did an experiment where they had the state of North Carolina's retirement division send nudges, is what they called them, to older public employees who were taking part in supplemental savings programs or plans. And they found that these workers who were more likely to reassess their saving strategies or increase their contributions to their retirement fund if they received the nudge.

[Charlie Turner]

All right. Now how much more likely were they apt to change their contributions? Were there numbers put to this?

[Small Business Owner]

Yeah.

[Francesca Fontana]

Results showed that workers who received the emails were more likely to change their contributions, increasing them at a rate of 2.8% in the short term compared to 1.8% of the control group. So it was a small but significant change.

[Charlie Turner]

So I notice you wrote as well that research builds on earlier studies showing that nudges or encouragement can change people's behaviors, such as helping patients manage chronic diseases.

[Small Business Owner]

Yeah.

[Francesca Fontana]

Yeah. So these nudges are basically seen in behavioral economics as a way to, as the term suggests, nudge someone in a certain direction. So this sort of indirect way to lead someone to a certain action or to change their behavior. So in this case, they wanted employees to take another look and see whether they were saving as much as financial experts say people should because data shows that Americans are less prepared for retirement than they were in the past.

[Charlie Turner]

I'm speaking with Francesca Fontana of the Wall Street Journal, and you're Listening to youo Money Matters. Thanks for listening, everyone. Francesca, this experiment, it was conducted a couple years ago. How many, how many people did it involve?

[Francesca Fontana]

The sample was of 14,710 workers for the state of North Carolina, 50 through 69 years old. They targeted this demographic of older workers because they're seen set in their ways and harder to nudge toward a specific behavior.

[Charlie Turner]

Your story also mentions, I believe, the median amount of money that people have saved up for retirement. And the numbers were absolute stunners to me. Why don't you tell me what they are?

[Francesca Fontana]

Yeah. The median retirement account balance for all working age households in America today is only $3,000. And for near retirement households, it's not much more. It's $12,000. And financial experts to save, you know, eight to 11 times their annual income to maintain their standard of living in retirement. So there's obviously a really big difference between what people are telling workers to do and what they're actually doing.

[Charlie Turner]

Sounds like workers need a lot of encouragement.

[Francesca Fontana]

Yes.

[Charlie Turner]

Wall Street Journal reporter Francesca Fontana. Thank you very much for joining us.

[Francesca Fontana]

Thank you.

[Charlie Turner]

And that's your Money Matters. I'm Charlie Turner at the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need

[Advocate for Durbin Marshall Bill]

it infl killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Advocate for Durbin Marshall Bill]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.