The Disparate Effect of Nudges on Minority Groups Making Financial Decisions—the “Savings for Every Child” Case
- This research examines mobile text messages (SMS) that were sent within the framework of the entry into effect of the “Savings for Every Child” regulation, with the goal of encouraging the active participation of parents in choosing the savings program for their children.
- The impact of the mobile text message was positive and raised, on average, the active participation rate of the Jewish non-ultra-Orthodox population in the program by 15 percent, the additional savings by 8 percent, and making the choice via mobile phone by 6 percent.
- The impact of the mobile text message on the ultra-Orthodox and Arab public is less than half the impact on the Jewish non-ultra-Orthodox population, at 6 percent for the general choice, 2 percent for choosing additional savings, and 1 percent for making the choice via mobile phone.
- Parents who responded to the survey and were found to have high trust in government institutions and believe that government institutions are working for their benefit were impacted markedly more by the text message.
- Parents with low financial literacy (actual knowledge and/or self confidence in one’s knowledge) were impacted markedly less.
- The research highlights the need for focused thinking in order to improve the utilization level of existing government programs in the general population.
Institutions and regulators are increasing the use of digital text messages in order to raise awareness of various issues or to encourage participation in programs and initiatives. In theory, reminders and text messages should increase awareness of the message’s issue and encourage taking active steps. The use of a digital infrastructure to enhance awareness does have the potential to ease the decision-making processes of households but the use of or the access to the digital infrastructure creates challenges for part of the population. Therefore the question arises of whether sending a mobile text message impacts on the population and is the effect equal for all sectors? It is important to examine this issue in order to see the existing gaps in consumer regulation today and their connection to the level of the public’s financial literacy.
Maya Haran Rosen from the Bank of Israel’s Research Department and Prof. Orly Sade from the Hebrew University’s Jerusalem School of Business use as a test case—to examine the impact of SMS messages—the messages sent to mobile phones within the framework of the entry into force of the “Savings for Every Child” program in 2017, on various population groups. “Savings for Every Child” is a savings program for every child under the age of 18 in Israel, through which the State deposits NIS 50 per month into a savings account in the child’s name, with subsidized management fees for the children. Within the framework of the program, parents can choose where the money will be managed (mutual funds or banks—the choice includes most of the known and large entities in the economy), the manner of managing the funds, and whether to deposit an additional NIS 50 per month in the program from the child allowance. When the program went into effect in 2017, there was a half a year in which the parents were given the possibility to make an active choice, before defaults came into force.
On February 6–7, 2017, the National Insurance Institute (NII) sent a mobile text message to parents affiliated with branches in Beersheva and Bnei Brak who had not yet made an active decision about “Savings for Every Child”, in order to encourage an active decision. The focus on these branches was with the goal of providing a greater response to the Arab and ultra-Orthodox populations in Israel. During that period, mobile text messages were sent to about 40,000 parents. During the two weeks following the sending of the messages, no additional activities were carried out by the NII, creating a period in which the impact of the text message could be examined in a direct manner.
By analyzing administrative data from the NII and combining it with a designated survey that provides additional details, we achieved the following insights: First, the effect of the mobile text message was positive and on average raised the rate of active participation in the program of the Jewish non-ultra-Orthodox population by approximately 15 percent, the additional savings by 8 percent, and making the decision via mobile phone by 6 percent. The impact of the mobile text message on the ultra-Orthodox and Arab population is less than half the effect on the Jewish non-ultra-Orthodox population, and was 6 percent for the whole decision, 2 percent for the decision to add savings, and 1 percent for making the decision via mobile phone (Figure 1).
Part of the different impact on population segments derives from the characteristics of the population. In particular, it was found that the level of trust in government institutions, and financial literacy (as found in the survey) impact on the effectiveness of the text message. Parents who responded to the survey and were found to have high trust in government institutions and believe that the government institutions work for their benefit were impacted markedly more by the mobile text message, while those with low financial literacy (actual knowledge and/or self confidence in one’s knowledge) were impacted notably less.
This research shows that reminders via mobile text messages increase the public’s activism in making financial decisions. However, there are gaps between various populations. In particular, the effect of the SMS text message on the ultra-Orthodox and Arab public is weaker, and derives from, among other things, low levels of financial literacy and of trust. Therefore, it appears that there is value in enhancing the public’s level of financial literacy and trust in order to increase the effectiveness of regulatory programs. There is also room to think about other methods, which include more human interaction, for transmitting information on financial regulation to populations with low levels of financial literacy, such as lectures in public centers or even through detailed explanatory films.