Compliments are powerful – so much so that words of praise and reminders will prod banking customers to save more instead of taking on greater debt.
That’s the conclusion of two U.S. scholars in a major research project released in June that examined the financial behavior of select Banorte customers getting “savings nudges” via direct messages.
That insight provides not only a deeper understanding of consumer habits driven by savings tips and reminders, but it also outlines a pathway for Banorte and other financial institutions as they look to further enhance their external relationships.
In the National Bureau of Economic Research paper “Does Saving Cause Borrowing?,” Paolina C. Medina of Texas A&M University at College Station, a Banorte employee at the time of the experiment, and Michaela Pagel of the Columbia University in New York said that increased levels of savings did not directly mean those customers took on more debt through borrowing.
Those getting the text reminders saved $61 more per month but did not increase their borrowing, according to the research.
Out of more than 3 million Banorte customers, a control group of 375,000 received ATM and text messages over seven weeks in in the fall 2019 suggesting that they save. Among the messages:
- “Congratulations. Your average balance over the last 12 months has been great! Continue to increase your balance and strengthen your savings.”
- “Increase the balance in your Banorte Account and get ready today for year-end expenses!”
- “Join customers your age who already save 10% or more of their income. Commit and increase the balance in your Banorte Account by $XXX this month.”
- “The holidays are coming. Commit to saving $XXX on your Banorte Account and avoid money shortfalls on year-end!”
The researchers said the results helped explain “the mechanism behind the so-called credit card debt puzzle,” such as when individuals hold credit card debt and savings simultaneously.
“We find that individuals who paid credit card interest at baseline also responded to the savings nudge with significant increases in liquid savings. Nevertheless, this increase in savings was not accompanied by meaningful increases in credit card debt,” they said.
Richard Thaler, winner of the 2017 Nobel Prize in economics and previous academic adviser to one of the authors, highlighted the study, saying it’s consistent with other research on connections between savings and borrowing.
— Richard H Thaler (@R_Thaler) June 28, 2021
Cass Sunstein, founder and director of the Program on Behavioral Economics and Public Policy at Harvard Law School and former administrator of the White House Office of Information and Regulatory Affairs, saluted the study’s “powerful evidence” of savings nudges:
Does saving cause borrowing? Here's a finding that it doesn't, based on a randomized experiment with >3 million customers. Powerful evidence of nudges that are unaccompanied by an adverse side-effect – and of mental accounting. @R_Thaler https://t.co/Hc2bZwCP2e
— Cass Sunstein (@CassSunstein) June 28, 2021
Banorte Chairman Carlos Hank González said the experiment was carried out in partnership with Banorte’s Analytics Business Unit, reflecting the bank’s commitment to advance digital innovation through deep knowledge of its customers.
“This has produced valuable findings, helping both our clients and others in academics and the finance industry eager to learn more about effective ways to support consumers and their savings,” Carlos Hank González said.