> Posted by ideas42

The following post was originally published on the ideas42 blog.

It’s simply a fact that many products, policies, and services created specifically to benefit everyday people are either under-used or not used at all. Whether it’s helpful savings tools, financial aid for education, or comprehensive health insurance plans, many of us simply never enroll or use them despite intending to do so. So what’s going on?

One major factor is that most of these underutilized programs have been designed according to a “traditional” view of human behavior, in which designers assume that we always take the time to consider all of our options, choose what’s rationally the best option for us, and then act on it.

Behavioral science, however, breaks from this traditional model. We find that in reality, we don’t always carefully compare our options, if we even think about them at all. Likewise, if we do make a good choice, we may not necessarily follow through on it. So in order for solutions to be truly effective, they must be designed for how people really are, rather than how we imagine they should be.

This was one of the main things ideas42 kept in mind when approaching the problem of low retirement contribution rates in Mexico. Regular readers of our blog may remember that under the current pension system, Mexican workers stand to retire on just 40 percent of their current salary, unless they make additional individual contributions—yet the overwhelming majority of Mexicans aren’t taking these crucial steps to improve their savings.

With funding from the MetLife Foundation, we worked with key members of the Mexican retirement system to dive deeper into the behavioral barriers influencing low voluntary contributions. We conducted interviews with stakeholders and account holders across major cities in Mexico, as well as in-depth analyses of administrative materials and data. Based on the insights we uncovered, we designed a variety of behavioral solutions and recommendations for the Mexican pension system:

  • Create an opt-out system linking accounts to paychecks or bank accounts to make retirement savings automatic and effortless.
  • Use visualization exercises, goal-setting activities, and reminders to make retirement feel vivid.
  • Tie contributions to actual benefits and re-frame messaging to lessen the feeling of loss associated with saving for the future.
  • Make retirement savings visible and commonplace by demonstrating that most community members believe they should save more for a comfortable retirement.

These recommendations and potential behavioral solutions make up our new report, Using Behavioral Science to Increase Retirement Savings. The report, available here in English and Spanish, was unveiled this week at an event hosted by CONSAR, MetLife Foundation and ideas42 in Mexico City.

Behavioral solutions like the ones outlined in our report have the potential to increase retirement savings for millions of people, but it is crucial to test any solution in the field to evaluate its effectiveness. We’re currently engaging with key members of the pension system to implement various testable interventions in Mexico and Latin America. It is our hope that our report and ongoing work in Mexico over the coming months will inspire others to approach long-term savings from a new perspective—one that better aligns with the realities of human behavior—to improve financial health for millions of people worldwide.

Image credit: World Bank

Have you read?

Tackling Low Retirement Savings in Mexico

“Would you like a pension with that?”

Aging in Latin America and the Caribbean: Challenge Meets Opportunity