The Way We Work
Wendy De La Rosa: 3 psychological tricks to help you save money
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We all want to save more money -- but overall, people today are doing less and less of it. Behavioral scientist Wendy De La Rosa studies how everyday people make decisions to improve their financial well-being. What she's found can help you painlessly make the commitment to save more and spend less.
Wendy De La Rosa - Behavioral scientist
Wendy De La Rosa is a co-founder of Common Cents Lab, where she focuses on using behavioral science to help people make better financial decisions. Full bio
Wendy De La Rosa is a co-founder of Common Cents Lab, where she focuses on using behavioral science to help people make better financial decisions. Full bio
Double-click the English transcript below to play the video.
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We all know that saving is important
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and is something that we should be doing.
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And yet, overall, we're doing
less and less of it.
less and less of it.
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[The Way We Work]
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We know what we need to do.
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The question is: How do we do it?
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And that's what I'm here to teach you.
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Your savings behavior
isn't a question of how smart you are
isn't a question of how smart you are
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or how much willpower you have.
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The amount we save depends
on the environmental cues around us.
on the environmental cues around us.
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Let me give you an example.
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We ran a study in which, in one group,
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we showed people
their income on a monthly basis.
their income on a monthly basis.
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In another group, we showed people
their income on a weekly basis.
their income on a weekly basis.
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And what we found was that people
who saw their income on a weekly basis
who saw their income on a weekly basis
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were able to budget better
throughout the month.
throughout the month.
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Now, it's important to know
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that we didn't change
how much money people were receiving,
how much money people were receiving,
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we just changed the environment
in which they understood their income.
in which they understood their income.
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And environmental cues
like this have an impact.
like this have an impact.
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So I'm not going to share tricks with you
that you already know.
that you already know.
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I'm not going to tell you
how to open up a savings account
how to open up a savings account
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or how to start saving
for your retirement.
for your retirement.
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What I am going to share with you
is how to bridge this gap
is how to bridge this gap
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from your intentions to save
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and your actions.
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Are you ready?
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Here's number one:
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harness the power of pre-commitment.
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Fundamentally, we think about ourselves
in two different ways:
in two different ways:
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our present self and our future self.
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In the future, we're perfect.
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In the future, we're going to
save for retirement,
save for retirement,
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we're going to lose weight,
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we're going to call our parents more.
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But we oftentimes forget
that our future self
that our future self
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is exactly the same person
as our present self.
as our present self.
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We know that one of the best times to save
is when you get your tax return.
is when you get your tax return.
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So we tried an A/B test.
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In the first group, we texted people
in early February,
in early February,
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hopefully before
they even filed for their taxes.
they even filed for their taxes.
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And we asked them,
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"If you get a tax refund,
what percentage would you like to save?"
what percentage would you like to save?"
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Now this is a really hard question.
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They didn't know if they would
receive a tax refund or how much.
receive a tax refund or how much.
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But we asked the question anyway.
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In the second group, we asked people
right after they received their refund,
right after they received their refund,
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"What percentage would you like to save?"
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Now, here's what happened.
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In that second condition, when people
just received their tax refund,
just received their tax refund,
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they wanted to save about 17 percent
of their tax refund.
of their tax refund.
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But in the condition when we asked people
before they even filed their taxes,
before they even filed their taxes,
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savings rates increased
from 17 percent to 27 percent
from 17 percent to 27 percent
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when we asked in February.
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Why?
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Because you're committing
for your future self,
for your future self,
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and of course your future self
can save 27 percent.
can save 27 percent.
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These large changes in savings behavior
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came from the fact that we changed
the decision-making environment.
the decision-making environment.
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We want you to be able
to harness that same power.
to harness that same power.
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So take a moment
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and think about the ways in which
you can sign up your future self
you can sign up your future self
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for something that you know today
will be a little bit hard.
will be a little bit hard.
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Sign up for an app that lets you
make savings decisions in advance.
make savings decisions in advance.
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The trick is, you have to have
that binding contract.
that binding contract.
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Number two: use transition moments
to your advantage.
to your advantage.
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We did an experiment with a website
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that helps older adults
share their housing.
share their housing.
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We ran two ads on social media,
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targeted to the same
population of 64-year-olds.
population of 64-year-olds.
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In one group, we said,
"Hey, you're getting older.
"Hey, you're getting older.
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Are you ready for retirement?
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House sharing can help."
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In the second group,
we got a little bit more specific
we got a little bit more specific
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and said, "You're 64 turning 65.
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Are you ready for retirement?
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House sharing can help."
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What we're doing in that second group
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is highlighting that
a transition is happening.
a transition is happening.
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All of a sudden,
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we saw click-through rates,
and ultimately sign-up rates, increase
and ultimately sign-up rates, increase
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when we highlight that.
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In psychology, we call this
the "fresh start effect."
the "fresh start effect."
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Whether it's the start of a new year
or even a new season,
or even a new season,
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your motivation to act increases.
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So right now, put a meeting
request on your calendar
request on your calendar
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for the day before your next birthday.
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Identify the one financial thing
you most want to do.
you most want to do.
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And commit yourself to it.
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The third and final trick:
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get a handle on small, frequent purchases.
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We've run a few different studies
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and found that the number one purchase
people say they regret, after bank fees,
people say they regret, after bank fees,
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is eating out.
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It's a frequent purchase
we make almost every day,
we make almost every day,
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and it's death by a thousand cuts.
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A coffee here, a burrito there ...
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It adds up and decreases
our ability to save.
our ability to save.
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Back when I lived in New York City,
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I looked at my expenses
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and saw that I spent over 2,000 dollars
on ride-sharing apps.
on ride-sharing apps.
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It was more than my New York City rent.
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I vowed to make a change.
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And the next month,
I spent 2,000 dollars again --
I spent 2,000 dollars again --
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no change, because the information
alone didn't change my behavior.
alone didn't change my behavior.
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I didn't change my environment.
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So now that I was 4,000 dollars
in the hole, I did two things.
in the hole, I did two things.
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The first is that I unlinked
my credit card
my credit card
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from my car-sharing apps.
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Instead, I linked a debit card
that only had 300 dollars a month.
that only had 300 dollars a month.
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If I needed more,
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I had to go through the whole process
of adding a new card,
of adding a new card,
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and we know that every click,
every barrier, changes our behavior.
every barrier, changes our behavior.
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We aren't machines.
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We don't carry around an abacus every day,
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adding up what we're spending,
in comparison to what we wanted.
in comparison to what we wanted.
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But what our brains are very good at
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is counting up the number of times
we've done something.
we've done something.
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So I gave myself a limit.
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I can only use ride-sharing apps
three times a week.
three times a week.
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It forced me to ration my travels.
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I got a handle on my car-sharing expenses
to the benefit of my husband,
to the benefit of my husband,
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because of the environmental
changes that I did.
changes that I did.
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So get a handle on whatever
that purchase is for you,
that purchase is for you,
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and change your environment
to make it harder to do so.
to make it harder to do so.
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Those are my tips for you.
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But I want you to remember one thing.
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As human beings, we can be irrational
when it comes to saving
when it comes to saving
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and spending and budgeting.
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But luckily, we know this about ourselves,
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and we can predict how we'll act
under certain environments.
under certain environments.
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Let's do that with saving.
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Let's change our environment
to help our future selves.
to help our future selves.
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ABOUT THE SPEAKER
Wendy De La Rosa - Behavioral scientistWendy De La Rosa is a co-founder of Common Cents Lab, where she focuses on using behavioral science to help people make better financial decisions.
Why you should listen
Wendy De La Rosa's work has been published in Scientific American, PBS Newshour, Forbes and Tech Crunch. In addition, she was recently named a Forbes "30 Under 30" honoree and a Daisy and Paul Soros scholar. De La Rosa is also a PhD at Stanford's Graduate School of Business focusing on consumer behavior.
Prior to starting Common Cents Lab, De La Rosa helped start Google's first behavioral economics unit, optimizing product strategy and design, customer retention and engagement, and revenue across 30+ teams. She was also a researcher at The Wharton School at the University of Pennsylvania, where she collaborated with Dr. Adam Grant on research and application projects related to organizational behavior, employee motivation and burn-out. She was also a private equity investor at Goldman Sachs.
De La Rosa holds a bachelor's in economics with a concentration in management and finance from Wharton. She graduated summa cum laude and Phi Beta Kappa. In her spare time, De La Rosa leads a monthly behavioral economic reading and discussion series.
Wendy De La Rosa | Speaker | TED.com