Research Briefs

The Use of Nudges as Interventions to Increase Positive Financial Behaviors

As someone who is interested in how practitioners can change clients’ financial behavior, I have been looking to the use of nudge theory. Thaler and Sunstein wrote a book called Nudge: Improving Decisions About Health, Wealth, and Happinesswhich is featured in this quarter’s book review. While searching for research related to nudges and behavioral economics, I was surprised that there was very little published research on the actual use of this theory in our field. I was able to find a lot of research related to health and nutrition nudges as well as papers on the theory itself.

The two papers summarized below were examples of how nudges were used in concrete ways to increase positive financial behaviors. Both of these studies utilized low-cost, simple strategies to try and change financial behaviors of participants.

“Freshman Year Financial Aid Nudges: An Experiment to Increase FAFSA Renewal and College Persistence” by B. L. Castleman and L. C. Page (The Journal of Human Resources, 2015)(http://jhr.uwpress.org/content/51/2/389.abstract)

This research investigated whether providing college freshmen with personalized information and prompts about FAFSA filing delivered via text messages increased the rate at which they persist in college. A randomized control trial design was used to determine if (a) college freshmen who received the message reminders persisted at a higher rate than those who did not and (b) the impact of the outreach vary by the type of institution the student was enrolled.

A total of 808 students were selected for the intervention with 413 of them being assigned to the treatment group. Students selected for outreach received automated, text-based outreach during the Spring semester of their freshman year of college. Student in the control group did not receive the outreach, but they did receive support from an advisor if they initiated contact independently from the text messages.

First, an introductory message was sent, and then messages were sent to students about every two weeks. Messages primarily focused on financial aid and FAFSA renewal but also reminded students about related topics. Summer text messages explicitly prompted students to respond via text with questions or to seek one-on-one support. In contrast, in the school year intervention, messages directed student to resources at their own college or university. Two-way messaging was utilized for this intervention.

Overall, about 20 percent of studentswho received text messages responded to at least one message, with fewer than five percent opting out of the text messages. Just over 11 percent of the treatment group students engaged in a more substantial text-based advising campaign with an advisor. Yet, the outreach did not improve the rate in which students received in-person FAFSA renewal from an advisor. Nearly 9 percent of the control group obtained support with FAFSA refiling, which was virtually identical to those in the treatment group.

More four-year institution freshmen interacted with an advisor than did those from two-year institutions. However, students from two-year institutions were more likely to work with an advisor to renew their FAFSA. The treatment had no overall effect on the probability that students enrolled in Fall of sophomore year, but led to an increase in the probability that students were still enrolled in the Spring of their second year in college. While the intervention had no significant impact on persistence among four-year institution enrollers, it led to a positive and significant increase in persistence of second year two-year institutions.

“Can Simple Information Nudges Increase Employee Participation in a 401(k) Plan?” by R. L. Clark, J. A. Maki, and M. Sandler Morrill (Southern Economic Association, 2014)(https://www.jstor.org/stable/23809646?seq=1#page_scan_tab_contents)

This research investigated whether providing employees, who are not currently enrolled in a 401(k) plan, with additional employer-provided financial education would prompt them to enroll. All employees at one company hired in a two-year period who were not participating in the company’s 401(k) plan were randomly assigned to treatment and control groups. A total of 3,684 employees took part in the experiment. They were unaware that their behavior was being observed, and all data was received from administration.

The treatment group received a flyer that included a brief example of investment growth over time and instructions on how to sign up for the company’s 401(k) plan. The control group did not receive any additional information, but both groups received information on the plan in their orientation packets as well as encouragement during an annual review. The intervention highlighted benefits of saving, in particular the benefits of compounding interest. Most of the flyers were emailed to employees, but those who did not have regular access to a computer at work were given a black-and-white printout through interoffice mail. Employees were given about two months to respond to the information.

The average participation rate of employees in the treatment group was only 1% higher than the control group, which was not statistically significant. When the sample was disaggregated, there were some significant results. The study found that the intervention was associated with a large increase in those signing up who earned between $30,000 and $59,999. However, the effect was being driven by differences in age that are correlated with salary levels.

The largest effect of the intervention was seen when comparing employees in different age groups. The intervention had a larger impact on younger employees. Those ages 18 to 24 were 4.5 percent more likely to join the 401(k) plan. A similar difference was observed for those ages 35 to 44. One interesting finding was that those who were over the age of 45 who received the flyer, were 4.4 percent less likely to sign up for the plan compared to the control group. So, it is possible that the flyer discouraged this age group from signing up because it focused on the importance of starting to save early.


Carrie L. Johnson, AFC®, Ph.D. earned her B.S. in English for Information Systems from Dakota State University in Madison and her M.S. in Family and Consumer Sciences from South Dakota State University in Brookings. She earned her Ph.D. in Family and Consumer Science Education from Iowa State University in Ames.

The Standard

3rd Quarter 2018


Thank you to this issue's contributors:

Carrie L. Johnson, AFC®, Ph.D.

Laura Hendrix, AFC®,Ph.D.

Andrew Zumwalt, MS, CFP®,

Stephen Newland, AFC®

Cherie Stueve, MBA, CPA (inactive) AFC®

Jennifer Lear, AFC®

Jerry Buchko, AFC®

Rebecca Wiggins

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