Globally, emergency savings is increasingly recognised as an important pillar to build the financial resilience of people against unexpected life shocks and financial stress. However, people face many practical challenges, including behavioural barriers to savings. PIDM and The Behavioural Insights Team (BIT) collaborated to identify behavioural insights around savings behaviours that could help Malaysians better withstand financial shocks in the future. Our findings are presented in the form of a literature review on behavioural science research on savings, as well as a report outlining results and key recommendations from a survey and behavioural economics experiment.
Savings products are often created based on the assumption that people would rationally and willingly want to save for rainy days and their future goals. However, people seldom behave rationally due to behavioural biases. Our study identified six biases that influence people’s attitude towards savings: we focus on the present; we stick with the default; we make decisions with reference points; we are often overconfident; we don’t treat all money equally; and we are influenced by how savings are framed.
The majority of respondents (55%) have less than RM10,000 in available savings to draw on in the event of an emergency. This suggests that many Malaysians may not be adequately equipped to withstand financial shocks. We also found that those with irregular income had little emergency savings.
Our experiment showed that defaults significantly affected the amounts that people saved (relative to the control and framing treatments). This suggests that the clever use of ‘defaults’ and ‘anchor’ figures can encourage more savings as people are less likely to change what has been set for them.
The illustration depicts the distribution of present bias based on levels of emergency savings. Wider bars signify higher levels of present bias (degree of preference for rewards now rather than later). As present bias decreases, and people are more willing to wait, emergency savings increases. We also found higher levels of present bias among those with lower incomes.
When it comes to overconfidence, we see clear differences based on age group, with those aged 45-54 years old registering the highest levels.
When it comes to overconfidence, we see clear differences based on age group, with those aged 45-54 years old registering the highest levels. When it comes to overconfidence, we see clear differences based on age group,
In terms of savings behaviours by age group, we found that younger millennials (aged 25-34) displayed greater discipline by saving fixed amounts regularly. We also found that most millennials (aged 25-44) were healthy savers, setting aside 6-20% of their income for savings.
Family is a primary influence of savings behaviour for Malaysians, across all age groups. At the same time, professionals have a stronger influence on younger millennials (aged 25-34).
We found that setting the right default option - towards higher savings - had a strong influence on the amount people chose to save. This suggests that “smart defaults” can help people to save more. We need the industry to devise more products which can automate savings such as “Saving the change” or “sidecar accounts”, and make sure the default setting is that savings are enabled.
Lower income persons seem to have higher levels of present bias - especially those with the very least income. Present bias can influence us away from saving in favour of immediate needs. It is a significant behavioural obstacle to Malaysians savings. Education and intention may not be enough if ours brain are wired to direct us to the present. Products, services and policies should help us to visualise the future, commit to that future, and provide incentives now to encourage us to save for tomorrow.
Confidence can be good if it encourages us to engage in financial planning and decision-making, but bad if we overestimate our own abilities and make mistakes. Feedback is key; it allows us to adjust our confidence to match our actual ability. Policies and services should aim to provide Malaysians with more feedback on their finances and decision-making to help them improve.
We observed a high overlap between low-income and irregular income earners, in terms of who falls into these categories, and their reported and revealed savings behaviours. They lack savings, and confidence, which may discourage financial planning. Devise more products that are designed for and appeal to these groups, such as prize-linked savings accounts; and write policy and regulation to protect them from extractive practices like payday lending which prey on a lack of attention.
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