In Sweden, there’s a ritual called a fika, akin to a coffee break but more about conversation and less about actual coffee consumption.
During one such fika, Garrett Meccariello and Tobias Nasgarde got to chatting about how they could use in a practical way the skills they’d learned in Penn’s Master of Behavioral and Decision Sciences (MBDS) program.
“When you take a fika, you sit down with a coffee and pastry and you talk,” explains Nasgarde, who is Swedish. “You plan your travel around it. Every workplace has at least two a day. We were sitting there discussing how to help people, and we started talking about how we take too many fikas. That’s how we got onto this idea of financial literacy.”
Nasgarde and Meccariello define financial literacy simply. People designate financial goals and understand how their immediate spending will affect their long-term financial security. The conversation spurred a grant application to the Think Forward Initiative, which led to a research project and some interesting results. It turns out that gently nudging an online shopper with specific language at the right moment can reduce excess spending by almost 25 percent.
“We’ve all been on websites where you have a one-click purchase. You don’t have time to think, ‘Do I need this?’ and you don’t part physically with money. You don’t even take a card out of your wallet,” says Nasgarde. “Research has shown that when you’re in a cashless environment you spend a larger amount and you buy a larger number of items.”
The idea was to counter a consumer culture bent on getting people to make unneeded purchases, Meccariello says. “We’re trying to get in front of spending behavior that’s unnecessary,” he adds, “to help people make better choices.”
To do this, they had to first build the tool, an algorithm they created to closely emulate the experience of shopping online. With that in hand, they ran an initial test with other students in the MBDS program, and then secured the Institutional Review Board approval necessary for a preliminary study on 250 people, followed by one with 585 people. All had shopped online at least four times during the past year, and all were familiar with such shopping environments.
For the experiment itself, participants first selected a financial goal they hoped to meet within the next calendar year, such as saving for a house or car. They then had the opportunity to earn what the researchers dubbed “Experimental Currency Units,” or ECUs, through an activity in which they clicked on as many highlighted circles as possible in 30 seconds. Each person eventually received 50 ECUs, regardless of performance, which they were told equaled around 50 euros (about $58).
With cash in their pocket, participants visited an online shopping module containing 45 goods—five each in nine categories—deemed “unnecessary” by prior survey research conducted by Meccariello and Nasgarde. At one of two points during the process, either prior to shopping or just before checkout, participants randomly saw one of two pop-up notifications.
“One simply said, ‘If you spend now, you’re going to reduce your chances of meeting your goal in the future,’” Nasgarde explains. This they called the loss-aversion nudge. “The other stated this as well,” he says, “but it also added something along the lines of, ‘If you choose to spend now, you should place 20 percent of the purchase amount into a savings account.’” This they called the bundling nudge.
Participants who were interrupted before they began shopping, prodded with the simpler message—the loss-aversion nudge—spent 24 percent less than those in any of the other groups, including the control group.
The timing of the more effective pop-up makes sense, according to Meccariello. Before adding items to an online basket, there’s no attachment to any of them. But once they’re in the cart, they may as well already belong to the shopper. “It’s like a kid in a candy store,” he says, “but you’re telling that kid to put the candy she just picked up back on the shelf.”
Nasgarde and Meccariello presented their findings at a conference in Amsterdam in April, and at the Behavioral Science & Policy Association conference in Washington, D.C., in May. Feedback from those meetings prompted them to build a product that did what their study had tested, to enhance, not compete with, the current financial-assistance tools already on the market. Quinn is an algorithm that lives in a downloadable browser extension. Users plug in their financial goals, and phrases like “buy now” and “shopping cart” trigger the same gentle warning as the loss-aversion nudge from the study.
Though still in its early stages, Quinn has helped the researchers realize one of the initial goals they had with their study: to help people spend money in a smarter way.
“No one really likes being told no, especially when you have a credit card burning a hole in your wallet,” Meccariello says. “But sometimes, if you want take that vacation to Thailand or buy that house, you have to make different choices.”