How to Nudge People to Give More to Charity: Cass R. Sunstein
(Bloomberg View) —
One of the most spectacularly successful ideas in all of behavioral economics is Save More Tomorrow, by which employers ask employees if they would like to give some portion of their future wage increases to their retirement plans. An equally intriguing but largely untried idea is Give More Tomorrow, by which people take steps to increase their charitable donations — in the future. For nonprofits, employers and individuals, the holiday season would be a terrific time to take advantage of that idea.
Save More Tomorrow plans, pioneered by UCLA’s Shlomo Benartzi and the University of Chicago’s Richard Thaler, are a response to four findings in behavioral economics.
First, people are “loss-averse”; they don’t like to lose what they currently have. Second, people tend to procrastinate. They want to save money — later. (As a young man, Saint Augustine prayed, “God give me chastity — only not yet.”)
Third, people show “present bias.” Today and tomorrow really matter; next month, not so much. Fourth, people have self-control problems. They might have trouble coming up with plans to solve problems that they will face in the future.
In terms of retirement planning, these four findings are pretty devastating. They suggest that a lot of us won’t save nearly enough. After we stop working, we might find ourselves in big trouble. (Social Security helps, but for many people, it isn’t nearly enough.)
Save More Tomorrow plans are specifically designed with the behavioral findings in mind. They ask employees a simple question: Would you like to enroll in a plan that will commit some part of your future salary increases to retirement savings?
A lot of employees say yes. In an early study, almost 80 percent of employees agreed to participate. As a result, their savings increased substantially. All over the U.S., employers are using Save More Tomorrow plans, or variations on them, such as “automatic escalation,” by which employees’ contribution rates increase over time. These plans have added billions of dollars to retirement accounts, ensuring that many Americans will have a lot more economic security in their old age.
Could Give More Tomorrow plans have a similar effect?
In 2006, Anna Breman, then a graduate student at the Stockholm School of Economics, explored exactly that question. Her motivation was simple. Many people say that they want to give money to charity, but they are deterred by the same factors that discourage savings. It’s not always a lot of fun to make out a check, even to a good cause.
So Breman tested a novel fund-raising strategy — not in the laboratory but in the field. She worked with a very large Swedish charity that helps people in poor countries (for example, by providing farming education in Cambodia to increase self-reliance). To make the test as simple as possible, she restricted herself to monthly donors.
In Breman’s experiment, a telemarketing company asked hundreds of donors in Sweden whether they wanted to Give More Now, by immediately increasing their donations. The company asked hundreds of other donors a different question: whether they wanted to Give More Tomorrow, by increasing their donations after a two-month delay.
The results were dramatic. The average increase in donations was 32 percent higher in the Give More Tomorrow group. Moreover, the effect lasted. A full year after the intervention, nearly all of the Give More Tomorrow donors continued their higher donations.
One of Breman’s most intriguing claims tells us something about human nature. After making a charitable donation, people get a “warm glow” — but if they dislike present losses, they might nonetheless refuse to give. The beauty of Give More Tomorrow plans is that they enable people to get the warm glow without incurring those losses.
For the holiday season, Breman’s findings suggest a simple strategy for charitable organizations: Ask your regular donors whether they would like to increase their donations — in (say) February 2018. Her findings also suggest that donors might be asked whether they would like to commit to increasing their donations over time — with, say, a specified increase each quarter, or every six months.
Large employers who work with charities, such as United Way, could offer employees options of this kind. It is easy to imagine creative alternatives.
But individuals don’t need institutions to start down this path. We could easily take steps, right now, to make or increase our donations at some point in the future.
The main reason to do that, of course, is to help others. But behavioral science offers another reason: Those who give to others enjoy a big boost in happiness. So here’s a terrific gift that you can give yourself: Make a commitment today – to give more tomorrow.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.