Creative way to get clients to save more: Offer a prize

Research suggests savings increase when people are given a chance to win

Feb 20, 2015 @ 12:48 pm

By Liz Skinner

Financial advisers find they need several good psychological tricks to encourage saving, because no single approach works with every client.

Research suggests that advisers may want to consider an unusual method to motivate savings: Offer a prize, or even a chance to win a reward.

Programs that offer the chance to win a prize for every $25 saved in an account enticed more savers compared with ones without such an incentive. In addition, the prize-linked accounts attracted more money, as savers increased their monthly deposits to have more chances to win, according to studies sponsored by the nonprofit Doorways to Dream Fund.

“This isn't a demographic thing,” said Joanna Smith-Ramani, senior innovation director for the D2D Fund. “We see good impacts and benefits from the financially vulnerable and from financially secure consumers.”

D2D helped spark federal legislation last year to allow banks to offer prize-linked savings products, and about a dozen states have amended laws to allow for raffle-based products.

Retirement plan providers are discussing using such motivation to spur 401(k) participation, such as a company offering its employees the chance to win a 100% match as an incentive to enroll, Ms. Smith-Ramani said.

Such an offer cannot be made today because of regulations for retirement accounts, she said.

(More: Immediate gratification can take huge toll on retirement)

Could advisers implement a prize-linked strategy to encourage savings and other positive financial planning behavior?

Brad Klontz, a therapist and certified financial planner with Occidental Asset Management, said that, ideally, advisers want to foster intrinsic motivation. But, he added, there's a “mountain of evidence” that behavioral-reinforcing strategies — offering a reward to increase the frequency of the desired behavior — actually work.

Mr. Klontz helped build a reward system into his clients' savings efforts, having them save for some short-term goals such a vacation or more dinners out, rather than just tightening their budgets to pay for long-term goals.

(More: The power of purpose: Benefits of goals-based investing)

Julie Littlechild, president of Advisor Impact, said offering prizes for savings could work for some people who don't respond to other types of motivation but isn't likely to work for all clients.

Ms. Littlechild encourages advisers to use visualization techniques with clients, asking them to visualize what their best life would look like at retirement. Use of age-progression tools can help advisers make that visual approach much more real by showing them what they may look like at the time they are imagining, she said.

Adviser Harold Evensky, principal of Evensky & Katz/Foldes Financial Wealth Management, agrees the “prize” for clients is being able to pay for a trip or other goal.

His clients are encouraged to make the right decisions by being shown the impact of not doing them, Mr. Evensky said.

Financial writer Nick Murray disagrees that advisers, or anyone else, can motivate someone to do anything.

“I can't make a client care more about his family's financial security than he does,” Mr. Murray said. But advisers can help clients choose to be more committed to saving by asking questions that “cause a twinge of pain.”

His recommendation: “Do you know what would happen to your family financially if you didn't wake up tomorrow?”


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