Preliminary Abstract **Please DO NOT circulate without the author’s permission**

“Can Making Family Salient Improve Retirement Contributions? Evidence from Field Experiments in Mexico”

*Avni M. Shah (University of Toronto, Canada), Matthew Osborne (University of Toronto, Canada), Jaclyn Lefkowitz (Ideas42, USA), Andrew Fertig (Ideas 42, USA), Dilip Soman

(University of Toronto, Canada)

Despite good intentions, consumers regularly struggle to reach their retirement savings goals. There are small barriers and obstacles that prevent individuals from making consumption tradeoffs today in order to secure a better financial pathway for the future. While this is a persistent and pervasive issue all over the world, the urge to improve dwindling retirement contribution rates has become a major policy issue in Mexico.

Recent policy requires individuals to contribute the equivalent of 6.5% of their salary to their individual retirement account. However, under this system, workers expect to receive less than 40% of their current salary when they do in fact retire. These low mandatory contribution rates mean that one must voluntarily contribute to their pension plan in order to have a chance at attaining financial stability in retirement. Yet, current data show that only 0.3% of the 19 million active pension account holders make a contribution in a given year (CONSAR 2015). The lack of voluntary contributions has been a major contributor for why Mexico has a 27% elderly poverty rate, third worst in the world (OECD 2013).

After conducting in-depth interviews with over fifty individuals composed of a representative age, gender, occupational, and socio-economic population, we identified some key psychological barriers: lack of understanding of the money gained by retirement, lack of knowledge for how to make a contribution, as well as a myopia issue where individuals reported wanting to take care of their families today rather than trying to save for a distant future tomorrow. We predicted that, in contrast to approaches that have worked in the US and other individualistic cultures, Mexico may be quite different. We hypothesized that frames geared more towards thinking about family and family security may in fact be a stronger and more effective approach at nudging behavior than typical nudges. In an effort to test the effectiveness of treatments geared to address these problems, both Study 1 and Study 2 consisted of large-scale field experiments, manipulating different framing effects on retirement account statement designed to specifically address some of these barriers. We believed that pitting these various conditions against one another would also allow us to more easily determine which frame increased savings behavior.

In Study 1 (N=62,796) we conducted a field experiment with one of the largest retirement companies in Mexico. This company sends out mandatory account statements to all of its active members as a way to provide information about what the current value of their account is what returns they are getting. In addition, this standard account statement also informs individuals where they can make voluntary contributions and what their estimated returns would be like depending on their financial choice. During this trial, we systematically manipulated different message sent through the postal system against a control mailing, which was a standard account statement. These different treatments were designed to address and attend to some of the key psychological and implemental barriers with making contributions. We manipulated whether individuals saw a gain frame prompt on the front of the account statement, with a chart comparing how much they would gain as a function of contributing to the retirement account, over and above a traditional savings account. In the loss frame prompt, this wording was now

Preliminary Abstract **Please DO NOT circulate without the author’s permission**

reworded to comparing how much they would lose as a function of contributing to their traditional savings account, rather than putting their money in the retirement account. Study 1 also employed a family salience prompt via providing a cartoon picture of a family on a beach and asking individuals how they would like to secure their family’s future. Finally, we also included a wallet cutout condition designed to improve the ease of implementation for individuals by providing all of the necessary information needed for a contribution on a wallet card.

The first experiment was conducted during June-September 2016. In the control mailing (n=12,227), 0.9% of respondents made a voluntary contribution. We tested this against five different treatments: a gain frame (38% increase relative to control, n=12,639, p=0.007), a loss frame (41%, n=12,625, p=0.005), a family oriented message (32%, n=12,643, p = 0.021), and a wallet cutout (43%, n=12,662, p=0.0027). We find that conditional on contributing after receiving a mailing, and being a prior contributor, relative to the control (3611 pesos, n=114) the family message and the wallet cutout increase overall contributions (family: 5361 pesos, n=156, p=0.016; wallet: 5158 pesos, n=169, p=0.043, one-tailed test). Importantly, the family oriented message generated the largest increase in the number of contributors who decided to start making automatic contributions (152% increase over control, p=0.003, one-tail). Finally, the wallet cutout generated a statistically significant increase in the number of contributions made during the 3-month field experiment period following the treatment (control: 2.55 contributions; treatment 3.55 contributions, p = 0.009, one-tail).

In Study 2 (N=97,149), we sought to replicate out results using a different retirement company and message medium testing whether our effects replicated even with mobile SMS-text message prompts, a less visually arousing medium. Five treatment messages were sent in early October of 2016 and were tested against a control group (n=13,902), which did not receive a text message. The messages were a gain frame (n=13,859), a family oriented message (n=13,853), a message emphasizing making small contributions (n=13,877), a message emphasizing personal savings goals (n=13,901), and a fresh start for savings message (n=13,882). The contribution likelihood in the control group was 0.48%. Only the family message generated a statistically significant increase in the likelihood of contribution (44% increase over control, p=0.018). Interestingly, this effect persisted three months later, into 2017, as the average contribution likelihood in 2017 was still higher than the control for individuals who receive the family message (34% increase over control, p=0.032, one tail).

The results from two field experiments shed light on a novel potential approach to improve financial decisions related to retirement. Designing messages and frames geared to increase the salience of family significantly improves consumers’ ability to make positive financial choices (i.e., retirement contributions) in the long-run, particularly in collectivist cultures.