The Power of Personal Goals
“We study the effectiveness of soft, self-designed commitment devices, i.e. saving goals, in increasing individuals’ savings using data from a FinTech app. We establish that setting goals increases individuals’ savings rate and show that the effect is causal using a difference-in-differences identification strategy that exploits the random assignment of users into a group of beta testers who can set goals and a group of users who cannot. The increased savings within the app do not come at the expense of reduced savings outside the app. Moreover, goal setting also helps the individuals the literature has identified to have the lowest propensity to save. We explore the economic channels of our results by matching App user survey responses to their behavior and highlight the relative merits of monitoring and concreteness channels in explaining our findings. More broadly, our study contributes to the literature that studies commitment devices. The effectiveness of hard commitments, which either entail a monetary penalty for deviating from the plan of action or restrict the set of future available options, is supported by evidence across a broad range of domains …
On the other hand, the evidence on soft saving commitments, where individuals face no penalties when deviating from their plan, is more limited. These commitments are more scalable and much simpler to administer compared to hard commitments, but the lack of monetary costs associated with non-compliance may make soft commitments less effective (DellaVigna & Malmendier, 2006). Moreover, it is not clear whether individuals are able to create well-designed saving goals for themselves.” (Gargano & Rossi, 2022/2024).
One of the most important aspects of wether or not a goal is reached is dependent upon how the original goal is defined. One aspects of a lot of banking apps is the option for users to set their own savings goals. These goals act as a soft commitment device. In the study we are able to see that when a setting a goal in allows them to save more within the app without having adverse affects in other areas. Essentially a well structured goal will help improve the financial habits of the user, not just shifting money around from one area to another.
In the most simple ways these goals work by monitoring the progress that is made and making the goals as clear and specific as possible. However there has to be a balance as soft commitments are also easily missed and forgotten about because there is not punishment for missing the goal. There has to be a balance of motivation without a feeling of being overwhelmed.
References:
Gargano, A., & Rossi, A. G. (2022). Goal setting and saving in the FinTech era. University of Houston. Retrieved from https://economics.ucr.edu/wp-content/uploads/2022/03/3-10-22-Rossi-2.pdf
Ai aided in the creation of the title of the article
