Behavioral Interventions to Promote Social Mobility

Backer: Increasing savings for college

With student debt burdens reaching record highs, families often have to take on large amounts of debt to pursue higher education. We wanted to investigate if changing savings defaults could increase the amount families save for their children. To that end, we partnered with CollegeBacker, an online college savings platform that allows individuals to set up college savings accounts for their children and then invite other “backers” to donate to those savings accounts.

Since the launch of their online platform, Backer has expressed an interest in improving the size and rate of recurring contributions among their savers. Given the priorities of Backer, we decided to start with an experiment that changes the user interface of the contributors’ online portal. For the initial experiment, we changed the default contribution selection from a one-time contribution to a recurring contribution.

Rainy day savings

Emergency savings is low in the United States; prior to the COVID-19 pandemic, over a third of U.S. households could not fully pay a $400 emergency expense using cash or a cash equivalent. These low rates of emergency savings put households at risk in the event of an unexpected income loss or significant expense.

Emergency savings are often held in checking and savings accounts, and financial institutions, therefore, have an instrumental role to play in building these funds. We partnered with a Midwest credit union to develop a new product called a Rainy Day Savings Account. Our aim with this product was to help credit union members build savings automatically and avoid payment delinquencies on their debts, creating financial benefits for both the member and the credit union.

PerkUp CAFÉ: Emergency financial assistance

PerkUp is a digital platform through which employees can access savings and loan products as an employee benefit. The digital platform offers loans, savings accounts and a set of curated financial education resources, including one on one financial coaching.

Prior to the COVID-19 pandemic, PerkUp was working with local foundations to offer loans to hotel and restaurant workers in New Orleans as alternatives to high-cost loans and to test ideas for encouraging workers to transition from making loan payments to building savings. Most of these workers were laid off or furloughed, prompting PerkUp to establish an emergency financial assistance program with its philanthropic partners–the PerkUp COVID-19 Assistance Fund for Employees, or PerkUp CAFÉ. 

The PerkUp CAFÉ program was launched in October 2020. The experiment tests whether need-based consumption can be encouraged through an unconditional cash transfer (UCT) as opposed to traditional means testing (e.g. making workers document financial need).  It tests this through persuasive messaging and pre-commitment nudges coupled with email and text reminders, with the aim of encouraging the use of emergency assistance for meeting basic needs.

Foundation Communities: Enrollment in health insurance programs

This study was a partnership with Foundation Communities to field a two-part experiment that tests how behaviorally designed promotional messages affect enrollment in publicly subsidized health insurance programs.

The sample in this study is made up of all FC clients who either utilized FC’s health insurance services in a previous year (but need to re-enroll this year) or who indicated that they may be in need of health insurance when receiving other FC services in the Winter and Spring of 2020. Those in the intervention group receive redesigned promotional messages that address barriers to accessing publicly subsidized health insurance in addition to providing information about how to access FC’s insurance services.

Justine PETERSEN: Loan payment reminders
During times of crisis, a little encouragement can go a long way. A recent study conducted by Ideas42 aimed to nudge college students into using student support services through periodic SMS reminders. The Ideas42 team found that students who received weekly SMS reminders with encouraging messages were more likely to have positive educational outcomes than those who did not. In this experiment, we partnered with Justine PETERSEN, a St. Louis-based Community Development Finance Institution (CDFI) to see how the concept of encouragement could translate to increased loan repayment among small business borrowers.
Targeted reminder messages have been shown to help individuals meet a wide range of financial goals, including loan repayment. Additionally, previous research has indicated that simply by developing a plan for executing a goal can increase the likelihood of following through on a wide range of goals. In this experiment, we test how restructured loan repayment reminder messages that use small business owners’ goals and their own words of encouragement can affect the loan delinquency rates of Justine PETERSEN’s small business loan borrowers. In their own words, view this video of one small business owner: https://youtu.be/BQ_KhXZFIwk

Foundation Communities: Increasing affordability through FAFSA
As the cost of college continues to rise, it has become increasingly important for students to apply for financial aid. However, the process of completing the Free Application for Federal Student Aid (FAFSA), which requires detailed information on a student’s family composition, income and other household assets can be daunting for many low-income students.
To better understand how we could nudge students to complete their FAFSA, we partnered with the College Hub, a program of Foundation Communities, a community non-profit organization in Austin, Texas that assists clients in completing and submitting their FAFSA and Texas Application for State Financial Aid (TASFA).
We used behavioral insights to nudge students to sign up for FAFSA by focusing on benefits-framed messaging, highlighting how filling out the FAFSA could make college more affordable, and included testimonials from the FC team describing how they have personally benefited from filling out the FAFSA.

Preventing delinquencies
Falling behind on debt payments can happen for a number of reasons, including procrastination, inattention, financial constraints, and a misunderstanding of the costs of delinquent payments (e.g., higher borrowing costs in the future). Regardless of the reasons, these delinquent payments can pose financial risks to households. Sometimes these risks are small, like a modest decline in a credit score, and sometimes these risks are large, like a loss of access to credit or vehicle repossession.
Given the diversity of potential reasons for payment delinquencies, we wanted to compare a diverse array of behavioral interventions—some common, some less common—to determine which approach was most effective at preventing debt payment delinquencies. To do so, we partnered with Midwest credit union to implement an experiment incorporating emailed payment reminders, reminders placed on refrigerator magnets, and access to a new type of savings account, each of which may impact payment delinquencies through different behavioral channels.
We developed an experiment to test the efficacy of email reminders, magnet reminders, and a savings intervention at helping debt-holding credit union members prevent payment delinquencies. The measured outcomes are drawn from credit union data and include the incidence and frequency of debt payment delinquencies, the length of delinquencies, savings amounts, the incidence of setting up automatic debt payments, and the rate of opening Rainy Day Savings Accounts.

Payment reminders and financial counseling
Payment reminders and financial coaching and counseling services are two key ways by which programs can help people stay on track with their debts. Payment reminders, which alert people to an upcoming payment due date, are an extremely low-touch way of doing so. Financial coaching and counseling services, which work directly with clients to identify and address their financial needs and goals, represent a high-touch way of keeping people on track with their debt obligations.
We wanted to test the extent to which payment reminders could complement financial counseling services by partnering with a Midwest credit union and a multi-service community organization that provides financial counseling services. We designed an experiment testing the impact of offering indebted credit union members the opportunity to receive free financial counseling from an external organization coupled with debt payment reminders provided by the credit union in order to help them avoid delinquencies on their debt payments.
Measured outcomes of the experiment include the rate of financial counseling take-up as well as an array of relevant financial indicators captured through credit union data, including checking and savings account balances, account opening behavior, debt payment delinquencies, and new debts incurred.

Behaviorally-informed delinquency notices
Payment delinquencies can have high direct and indirect costs for households. Even modest payment delinquencies can incur fines and fees, while longer-term delinquencies may result in foreclosures, repossession, and substantial harm to credit scores. While there has been ample research on ways in which behavioral economics can help prevent payment delinquencies—through the use of payment reminders or setting up automatic payments, for example—there is less work on ways in which nudges can help households “cure” existing delinquencies.
We investigate the extent to which behaviorally-informed delinquency notices can impact the rates of households becoming current on their debt payments. We partnered with a Midwest credit union to design delinquency notice emails that would be delivered to any members who became delinquent on their installment debt payments.

This experiment was launched in September 2020 to 30,000 debt-holding credit union members. Key outcomes for this study are drawn from credit union data and include the rate of delinquency resolution, the time to delinquency resolution, and the occurrence of future delinquencies.