Financial shocks are key savings motivator, research shows

The findings were part of a Competition and Consumer Protection Commission trial that investigated ways in which financial institutions can improve customer wellbeing

The CCPC's research shows how financial service providers can use behavioural insights to improve consumer financial well-being. Picture: Andres Poveda.

NEW research has revealed that the fear of future ‘financial shocks’ is a key savings motivator for Irish consumers.

The findings were part of a trial, conducted by the Competition and Consumer Protection Commission (CCPC), that investigated ways in which financial institutions can improve customer wellbeing.

In particular, the study, designed by the Economic and Social Research Institute and facilitated by Bank of Ireland, examined the effects of behavioural science interventions on whether consumers opened a savings account or not.

Such interventions included altering savings application forms with ‘pledge tools’ to offer customers the chance to make pre-commitments to withdraw only for specific reasons and interactive calculators to calculate saving targets.

As part of the trial, customers were sent marketing emails with consumer-friendly infographics that illustrated financial shock statistics, such as “6 in 10 people face an unexpected expense each year”.

The results showed that customers who received the emails were 20 percent more likely to open a savings account than those who received standard marketing materials.

Reframing the term ‘rainy day fund’ to ‘unexpected expenses’ was also shown to positively influence consumer behaviour.

Weathering shock

“In practice, financial wellbeing means being able to cope with the everyday, the rainy day, and to plan for the future," said Gavin Kelly, CEO, Retail Ireland, Bank of Ireland.

"However, we know that one in four people would not have enough in savings to meet their financial commitments for more than a month.

“Being prepared for the unexpected and able to cope with financial shocks is a key driver of financial well-being.” 

The CCPC has used the findings to develop a guide for financial providers on how they can encourage short-term saving habits for consumers.

“Every year, most people face at least one unexpected financial shock – such as the need to spend money on repairing their car or their boiler,” said Jeremy Godfrey, CCPC Chairperson.

“This research has shown that many more customers will choose to save for the unexpected if financial institutions use behavioural insights to design their marketing materials and their application process.

“We encourage other financial institutions to make use of this research so that more Irish consumers can weather financial shocks without going into debt.” 

Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union, added: “Savings can provide an important way for consumers to be prepared for unexpected financial shocks. It matters how information is presented and what language is used.”