An entrepreneur born in 1990 has grown up in quite a different world than one born in 1960. Imagine a...
Aug 22 2016
Enhancing Savings Behaviors of Low- to Middle- Income Families
Managing personal finances is challenging and complex. We all make a great many financial decisions every day, often without thinking deeply about them. But virtually every one of them represents a tradeoff of some kind. Of course, if we were purely rational beings, with infinite time to weigh and evaluate every decision we make, we would always make financially optimal decisions when facing a trade-off. However, in reality, we have limited time and limited mental resources available to navigate the multitude of choices we face every day. To manage this, we frequently rely on emotions and mental shortcuts, as well as, or even instead of, rational evaluation to make decisions. These help us to manage choices in a timely fashion but can also result in our making mistakes.
In this study we explore how behavioral economics provides a framework that can pinpoint some common mistakes low- and middle-income families make in their financial decisions. We then use this analysis to suggest interventions that credit unions could employ to help people adopt more effective financial behaviors, and build savings that provide a buffer against future financial challenges.
Report Number 406