1) The Save More Tomorrow (SMarT) program is a behavioral economics approach that helps employees increase their savings rates. It automatically increases contribution rates when employees get raises rather than requiring active decisions. 2) Three company implementations showed the program was popular and significantly increased savings rates over time compared to employees not in the program. 3) Extrapolating the results suggests widespread adoption of SMarT could substantially increase national savings rates and retirement savings.

1. Save More Tomorrow ™
Using Behavioral Economics to Increase Employee Saving.
By Richard H. Thaler and Shlomo Benartzi
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ECO401 – Franco Martínez Levis.

2. Agenda
1. Introduction
2. The Approach
3. The SMarT Program™
4. Conclusion
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3. Economic theory assumes that people solve problems as economists would.
Consumption Optimization
Smoothing Problem
The life cycle
theory of
saving
Households are assumed to solve this optimization problem in each period.
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Introduction Approach Conclusion
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4. Actual household behavior might differ for at least two reasons.
Problem is a Lack of
hard one. self-control.
Households might fail to compute the correct savings, or be unable to
reduce present consumption in favor of future consumption.
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Introduction Approach Conclusion
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5. Over the last decade, there have been changes on how pension plans are defined.
Social Security &
Defined-contribution
Defined-benefit Pension Plans.
Pension Plans.
Plans now require employees to actively join and select their own savings rate.
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Introduction Approach Conclusion
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6. There are three different kinds of economic analyses.
 Normative theories: characterize rational choice.
 Descriptive theories: model how people actually choose.
 Prescriptive theories: offer advice on how people can improve
decision making and get closer to the ideal.
The authors take a prescriptive approach to increasing saving rates.
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7. There is a possibility that some low-saving workers are making a mistake.
Determining the appropriate Not satisfactory heuristic that
savings rate is difficult. approximate a good solution.
Households would like to save
Procrastination & Status Quo bias.
more but lack the willpower.
The proposed program will take all these factors into account.
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Introduction Approach Conclusion
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8. The Save More Tomorrow™ Program has four main features.
Employees are approached about increasing their contribution rates
1.
a considerable time before their scheduled pay increase.
If employees join, their contribution to the plan is increased
2.
beginning with the first paycheck after a raise.
The contribution rate continues to increase on each scheduled
3.
raise until the contribution rate reaches a preset maximum.
4. The employee can opt out of the plan at any time.
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9. The First Implementation of SMarT™: Midsize Manufacturing Company
 Company suffered from both participation and saving rates.
 It was being constrained by U.S. Department of Labor rules that
restrict the proportion of benefits that can be paid to the higher-paid
employees in the firm.
Management was concerned that some of the workers may not be saving enough.
They hired an investment consultant and offered his services to every employee
eligible for the retirement savings plan.
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10. The company had 315 eligible employees.
All but 29 agreed to meet with the consultant and get his advice.
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11. The company had 315 eligible employees.
All but 29 agreed to meet with the consultant and get his advice.
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12. However, just 79 of them agreed to follow his advice.
For the rest of the participants, the planner offered a version of the
SMarT™ plan as an alternative.
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13. From these, almost 80% accepted the SMarT™ plan.
Save More Tomorrow™
The proposed increase in their saving rates was three percentage points each year,
starting with the next pay increase.
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14. The impact of the program on saving is shown in the table below.
The hypotheses of SMarT™ plan participants having a higher “taste for saving”
can be ruled out by the design of the study.
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15. The Second Implementation of SMarT™: Ispat Inland
Main Differences:
 No financial consultant hired.
Employees received a letter inviting them to join the program.
Annual increase to the savings rate was set at two percentage points.
 It was implemented with quite minimal resources.
Despite the lower costs of implementing, the program was still popular among employees.
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16. The impact of the program in the second implementation is shown below.
Those joining SMarT™ increased their saving rates by roughly 2 percent,
whereas those not joining the program did not change their saving rates much.
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17. Key takeaways from the Third Implementation of SMarT: Philips Electronics
The SMarT™ design One-on-one meetings
feature linking savings with a financial planner
increases to pay increases appear to be a very
may not be essential. effective (though costly)
recruitment tool.
Despite the lower costs of implementing, the program was still popular among employees.
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18. The final part of the paper analyzes the policy implications
Could widespread adoption of the SMarT™
plan make a substantial contribution to
increasing the personal savings rate?
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19. The results of their projections are displayed in the table below.
Results show that there is considerable opportunity for the SMarT™
program to increase the saving rate.
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20. Extrapolating the results for the 50-60 million individuals with access to 401 (k).
 They estimate $25 billion of additional annual contributions for each
1 percent increase.
 Current personal savings rate in US. near to zero. Substantial increase.
 Virtually all “new” savings.
The authors strongly encourage to design institutions that help people make better
decisions but not impinge on their freedom of choose. (Libertarian Paternalism)
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21. Thank you.
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