The science of saving, and how money ‘nudges’ can make a big difference

Imagine effortlessly saving more money, trimming your credit-card balance, and feeling calmer about your retirement nest egg. No gimmicks. Just subtle techniques that make good choices easier to stick to.

A new paper in the Judgment and Decision Making journal tested how people perceived 36 “financial nudges.” A nudge is essentially a small change in the way a decision is presented that predictably influences behaviour without limiting choice.

Surprisingly, it turns out people generally like nudges.

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When it comes to managing our cash flow, we particularly like nudges when they are framed around increasing savings rather than decreasing spending. We also prefer nudges that invite thoughtful reflection instead of relying on automatic defaults.

Interestingly, younger adults and women were the most enthusiastic about being nudged. And it turns out that even nudges delivered by banks drew net-positive ratings, but nudges from pretty much everyone else were more well-received.

More specifically:

Positive framing wins. Telling someone to “save an extra $50 a week” lands better than “spend $50 less.” Same math, different mood.

Reflective nudges trump automatic ones. Goal-setting tools and spending trackers earned higher marks than default sign-ups or prechecked boxes. People like feeling in control.

Messenger matters, but not much. When a nudge came from a bank, approval slipped slightly, yet remained above neutral.

Demographics make a difference. Younger adults and particularly women in urban areas were the most receptive to nudging. Older respondents were more reserved, possibly because they trust their own habits or dislike change.

Personally, I try to reduce decision points in my financial decision making as much as possible. For example, I put all my spending on one credit card and it has a low limit.

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All I have to do is pay it off in full every month. That’s very easy to do when I can’t spend very much to begin with. It’s not a complex system, but it works phenomenally well.

Below is a menu of evidence-backed tactics you can set up in minutes. Pick two and test them for a month.

Write a one-line goal, then tie it to payday. Decide on a goal and how much you will save toward it per pay period, where it will go, and when it will leave your chequing account. Example: “I will move $300 into my TFSA every time my pay hits.” Automating the transfer removes temptation, while connecting it to a conscious goal preserves autonomy.

Track just one leak. Full budgets feel daunting, so start small if it’s been a sticking point for you. Maybe it is takeout. Maybe rideshares. Open your banking app every Friday, jot that single category’s total on a sticky note or even create an e-mail thread to yourself with the number, and watch that number shrink week by week. Just being aware of your spending has an impact. It’s like the Hawthorne effect: people behave differently when they know they are being watched.

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Flip the frame. If the line “I need to stop buying coffee” leaves you cold, rephrase it as “Each homemade mug is $4 toward my Paris fund.” The gain frame resonated with subjects in the study more positively.

Harness social proof on your terms. Tell a friend or partner the goal and the date. Public commitments raise follow-through. Group chats work too. Share wins, laugh at missteps, move on.

Use round-ups for painless progress. Most major banks and several Canadian fintechs let you round each purchase to the nearest dollar (or five) and sweep the difference into savings. You will not miss the coins, yet they snowball. Check the balance after three months for a pleasant surprise. Pro-tip: this should be in addition to other savings targets. Using only round-ups may lead to undersaving.

Revisit and refresh quarterly. Mark a calendar reminder every three months. Keep what works, scrap what annoys you, add the next tactic. Iteration beats perfection.

Financial nudges can work because they respect choice, rely on subtle interventions, and align with how some people prefer to engage with money. A round-up automates good behaviour without heavy-handed force. A positive frame taps motivation instead of guilt.

Layer a few together and you create a personal choice architecture that does the heavy lifting toward your financial goals in the background. No pain, yet gain.

Preet Banerjee is a consultant to the wealth management industry with a focus on commercial applications of behavioural finance research.