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My Harvard professor’s top nudges on saving and investing |

The Budgetarian

My Harvard professor’s top nudges on saving and investing

FQ (Financial Quotient) - Rose Fres Fausto -
My Harvard professorâs top nudges on saving and investing
No matter how rational and intentional we think we are, we are still very much affected by what is the automatic option, the choice that has been made for us by the designer, the Choice Architect.

Earlier this week I shared my FQwentuhan with my professor at the Harvard Business School (HBS) professor, Francesca Gino. Francesca is an award-winning researcher, and the co-chair of the HBS Executive Programs on Behavioral Economics. She wrote books such as “Sidetracked: Why Our Decisions Get Derailed at How We Can Stick to the Plan” and “Rebel Talent: Why It Pays to Break Rules at Work and in Life”. Her work has been published in The Economist, The New York Times, Newsweek, Scientific American, Psychology Today and Wall Street Journal.

There are several nudges we can use to help ourselves do the right thing when it comes to saving and investing. I wish to discuss her two favorites.


In FQ Book 2 Why Financial Education Alone Does Not Work (a crash course in Behavioral Economics) back-to-back with The Psychology of Money, I discuss this in Chapter 19. Default Bias is our tendency to stay in the default or automatic option, avoiding complex or even simple decisions, either consciously or unconsciously.

There are various studies on the impact of this bias on how we save for our future, like this one - The Importance of Default Options For Retirement Savings Outcomes, co-authored by my other HBS professor John Beshears (Click link 1 to watch John’s childhood money memory and link 2 to watch his FQ Book 2 Launch message). Those who had to enroll in a savings account (i.e. they had to opt-in because the default choice was not being enrolled), the participation rate was low, versus those who were automatically enrolled in a savings plan (i.e. they had to opt-out of the default choice of being enrolled), participation rates were as high as 95%. 

No matter how rational and intentional we think we are, we are still very much affected by what is the automatic option, the choice that has been made for us by the designer, the Choice Architect. 

This is not only true for our decision making about savings and other money matters, but also true when it comes to our life-saving decisions as shown in the study of Johnson and Goldstein Do Defaults Save Lives? where we see a world of difference in the organ donation of countries with opt-in versus opt-out questions in their Department of Motor Vehicle forms. Here, we see that the countries with a default option of being organ donors (opt-out) resulted in almost 100% organ donation, versus as low as 4.25% for countries whose default option was not to be organ donors (opt-in). Since we usually go with the status-quo, not making an active choice to change the default option can unknowingly result in very important decisions being made by the Choice Architect.

Commitment device

Sometimes the availability of choices is over-rated. If we were all Makatwirang Maks, the number of choices should be better for all of us because having more choices is better than none or very few, right? However, since we are more Emotional Emongs, restricting ourselves from choices can actually help us reach our goals. This is what we call using Commitment Device.

A study was done in the Philippines by Ashraf (Harvard University), Karlan, and Yin (from Princeton University) in 2004. The purpose was to determine whether the design of a savings product has impact on the client’s savings level. 

They worked with Green Bank, a rural bank in Caraga, Mindanao. They designed a commitment savings product called SEED Account. SEED stands for Save, Earn, Enjoy Deposits. The SEED account required individuals to restrict their right to withdraw any funds in their own accounts until they reached a self-specified and documented goal. They could opt to restrict withdrawals until a specified date (e.g., in a month when large expenditures for their business, school, Christmas purchases, or a particular celebration were expected). Alternatively, they could set a goal amount and only have access to the funds once that goal was reached (e.g., if a known quantity of money was needed for a new roof). The clients had complete flexibility to choose which of these restrictions they would like on their account. However, once the decision was made, it could not be changed, and the clients could not withdraw funds from the account until they met their chosen goal amount or date. 

They found encouraging results as clients using the commitment savings product increased their savings after 12 months to as high as 337%! 

(To read the complete study, click SEED: A Commitment Product in the Philippines.)

Green Bank was bought by East West Bank in 2011. I am not sure if the acquiring bank still offers the SEED account. 

Applying these two nudges

It’s now time to check our defaults and commitment devices. What’s the default arrangement in your payroll account? Does it have an automatic saving and investing that works for you each pay day regardless where the market is? What commitment devices can you implement that may seem irrational at the start because you are eliminating choices on your future spending, but may actually be your savior when the monthly sale events come your way? 

Assess your financial environment now and make sure these two favorite nudges of my Harvard professor are in place and working to your benefit.

Cheers to High FQ!


1. Join me in my live show on Thursday. We will be talking to someone who rose from “Cleaning Rugs to Riches” Mike Gamez, the owner and Chief Executive Cleaner of Cleaneco. 

2. To learn more about your money behavior, get your copy of FQ Books and for your loved ones too. The principles you will learn from here are not only applicable in your financial life but all the other important aspects of your life.  

To know more about FQ Book 2, watch this short video.

3. To know more about our Financial Architecture service, please visit for more information. 

4. Most of the time, what we lack is not motivation but career clarity. To know more about it visit

5. How good are you with money? Do you want to know your FQ Score? Take the FQ Test and get hold of your finances now. Scan the QR code or click the link

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