If you want to encourage smart behaviors, make the smart thing easy to do. That is one of the messages we share with leaders in our behavioral economic workshop. At a recent workshop in DC we saw a great example of a credit union who is already executing that strategy.
Like many financial institutions, Digital Federal Credit Union (DCU) offers savings products, but they’ve put together a unique spin on what they’re offering. While most financial institutions pay a higher return on higher balances, DCU is doing the opposite. To encourage savings, they’re paying an Annual Percentage Yield of 5.12% on the first $1,000 on every member’s Primary Savings account which is opened when they join the credit union. Through research, they discovered a significant number of their members kept less than $1,000 in this high-interest rate savings account even though they maintained higher balances in other accounts they have at DCU, such as checking or money market account that pays significantly less. Many organizations would have done nothing at this point, but not DCU. They decided to nudge their members to practice better behaviors using tools from the behavioral economics toolbox.
How does it work? When a member logs into their account through DCU’s mobile app, a splash screen message indicates the current balance in their Primary Savings account and then presents an opportunity to automatically move funds from one of their other accounts to the Primary Savings account. The amount needed to increase their balances to the $1,000 level is already calculated and prefilled in the transfer request. All the member has to do is simply click a button.
What a great example of creating an environment that makes it easy to do the smart thing. First, they use loss aversion to remind members of the opportunity they are missing out on because reminders and pointing out the potential loss are powerful behavioral influencers. We are strongly motivated by the desire to avoid a loss. Second, they make it easy for members to make a smart choice by removing friction from the process of adding funds to the Primary Savings account. It’s not enough to tell people what to do, you have to help them.
While the program is still new, it is seeing terrific results according to David Araujo, Senior VP, Technology and Innovation at DCU. In just a few weeks since the launch, over 6,000 members have taken advantage of this program, transferring almost $10 million.
One surprising outcome is the number of members are moving more than the suggested amount. Again, simple reminders to save and making it easy to execute will nudge some individuals to actually save without the need for significant financial incentives.
We applaud DCU for their excellent choice architecture. Creating an environment by using behavioral economics to help their members make smarter financial decisions is truly carrying out the credit union mantra. Imagine the savings your members won’t have if a program like this isn’t in place at your organization. Learn about these tools and how to put them to use by attending one of our upcoming workshops.