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Soft versus Hard Commitments: A Test on Savings Behaviors

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  • Jeremy Burke
  • Jill Luoto
  • Francisco Perez‐Arce

Abstract

Commitment devices restricting future behavior have demonstrated promise in helping individuals improve their savings behavior, yet often suffer from low take‐up. We test a new “soft” commitment account that asks borrowers to think about their savings goals, how it would feel to achieve them, and make a pledge to work toward these goals, yet has no external restrictions on savings behavior. In a six‐month randomized experiment among consumers that find it difficult to meet their savings needs, we find that such soft commitments can significantly increase initial savings relative to either a hard commitment account (that prevents withdrawals) or a traditional savings account. In addition, the soft commitments significantly increased final savings balances relative to no form of commitment and were particularly effective for impatient individuals. Despite the lower initial take‐up, the hard commitment account proved most effective in building savings balances among our participants at the end of 6 months.

Suggested Citation

  • Jeremy Burke & Jill Luoto & Francisco Perez‐Arce, 2018. "Soft versus Hard Commitments: A Test on Savings Behaviors," Journal of Consumer Affairs, Wiley Blackwell, vol. 52(3), pages 733-745, November.
    • Handle: RePEc:bla:jconsa:v:52:y:2018:i:3:p:733-745
    DOI: 10.1111/joca.12170
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    Cited by:

    1. Simonse, Olaf & Van Dijk, Wilco W. & Van Dillen, Lotte F. & Van Dijk, Eric, 2024. "Economic predictors of the subjective experience of financial stress," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    2. Alexia Gaudeul & Caterina Giannetti, 2021. "Fostering the adoption of robo-advisors: A 3-weeks online stock-trading experiment," Discussion Papers 2021/275, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Beshears, John & Choi, James J. & Harris, Christopher & Laibson, David & Madrian, Brigitte C. & Sakong, Jung, 2020. "Which early withdrawal penalty attracts the most deposits to a commitment savings account?," Journal of Public Economics, Elsevier, vol. 183(C).
    4. Musah, Alhassan & Yakubu, Ibrahim Nandom & Abagna, Matthew Amalitinga, 2022. "Financial Literacy: A Peep into the Literature and Note for Policy," MPRA Paper 115703, University Library of Munich, Germany.
    5. Steinert, Janina Isabel & Vasumati Satish, Rucha & Stips, Felix & Vollmer, Sebastian, 2022. "Commitment or concealment? Impacts and use of a portable saving device: Evidence from a field experiment in urban India," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 367-398.
    6. Luca A. Panzone & Natasha Auch & Daniel John Zizzo, 2024. "Nudging the Food Basket Green: The Effects of Commitment and Badges on the Carbon Footprint of Food Shopping," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(1), pages 89-133, January.
    7. Paul Bettega & Paolo Crosetto & Dimitri Dubois & Rustam Romaniuc, 2023. "Hard vs. soft commitments: Experimental evidence from a sample of French gamblers," Working Papers 2023-05, Grenoble Applied Economics Laboratory (GAEL).
    8. Kyoung Tae Kim & Soo Hyun Cho & Sharon A. DeVaney, 2021. "Racial/ethnic differences in holding a retirement saving motive: A decomposition analysis," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(2), pages 464-482, June.
    9. Timmons, Shane & Robertson, Deirdre & Lunn, Pete, 2022. "Combining nudges and boosts to increase precautionary saving: A large-scale field experiment," Papers WP722, Economic and Social Research Institute (ESRI).
    10. Derksen, Laura & Kerwin, Jason & Reynoso, Natalia Ordaz & Sterck, Olivier, 2024. "Healthcare Appointments as Commitment Devices," IZA Discussion Papers 17070, Institute of Labor Economics (IZA).
    11. Alexia GAUDEUL & Caterina GIANNETTI, 2023. "Trade-offs in the design of financial algorithms," Discussion Papers 2023/288, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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