The Savings Conundrum: Lessons from A Pack of Cards

“I stack away money in my pack of cards.  I forget it’s there.  Then I come back to it and bam! I’m surprised I found money.” This man we interviewed last year is not alone in his affinity for surprise when it comes to money and saving.  In fact, a large number of people we talked to believe that “out of sight, out of mind” is a great technique for saving. People love the surprise in seeing their balance after a period of time and realizing they accumulated more than they thought.  The simple behavior around a pack of cards gives us an enormous amount of insight about how a financial product can be designed to accommodate a quest for surprise whilst saving.

In 2011, we interviewed almost 100 lower-income Brazilians. These were enlightening conversations full of nuance and tidbits of information, such as the one above, which gave us major insight into people’s financial behavior, as well as potential features for financial products.  Of the 100 interviews, 46 were carried out to inform a CGAP project with the second largest private bank in Brazil, Bradesco**. In spite of Bradesco’s size, the bank is commited to serving the base-of-the-pyramid and hence is a great partner for CGAP (more info on their work in this video).  For this project, we specifically set out to learn about lower-income Brazilians’ practices around saving.  The participants we talked to (who ranged in age from 18 to 70) were from Rio de Janeiro, Sao Paulo and Recife. Colorful and open conversations about their financial practices offered us a glimpse into how they manage their money.

These interviews, along with a co-creation workshop carried out by Plano CDE (check out this post for more information on this methodology and participant demographics) led us to identify the following barriers to savings:

1. Low, irregular, unpredictable income: A large number of lower-income Brazilians are informally employed, leading to irregularity in income.  Unpredictable income, along with fixed expenses like utilities results in financial stress for low income families. Ultimately, uneven cash flows and lack of ability to plan make saving in anything other than the mattress very difficult (if they even manage to save).
2. Financial shocks: Lower income families face different kinds of regular and irregular financial shocks.  The first kind is bill shock, which might occur every month; though receiving the bill is predictable and regular, its amount is not. Often consumers are taken aback by the extent of what they owe, no matter how closely they may have monitored their own electricity or water use. The second kind is a more irregular health shock; public health services force people to lose days when dealing with family illness and the expense of medicines can be destabilizing. Finally, other unpredictable expenditures --such as a family member’s death or lending a credit card to a friend who doesn’t pay the balance back-- can throw a family’s economy for a loop.
3. Consumption or temptation shock: Some people cannot resist a culture of consumption. Based on what respondents told us, once there was extra income left, instead of paying their debt or saving money for emergencies, people bought more superfluous items, expensive food, clothing, footwear and/or electronics.  Subjects communicated a regular lack of self-control observed in sudden urges to consume and helplessness to refuse children’s requests for expenditure. “When my daughter asks for money, I can’t say no,” said one of our interviewees.
4. Easy credit:  Brazil is known for its widespread credit.  Loans of many kinds are available, such as store credit, credit cards, and pastinhas (individuals who can go door-to-door and offer payroll loans on behalf of banks). People also use overdraft facilities and get advances from family. Even when indebted, they are contacted by institutions offering them credit. The consumer mindset is “why save for something if I can have the object now and pay later?” This wide availability of credit leads to indebtedness. People find themselves burdened by their debts; and this constant concern prevents them from considering savings.

After interviewees opened up about their financial challenges and their difficulty in saving we were curious to see what would get people to save money.  We asked what would drive them to save and began to hear patterns in their responses.  These are some of the things we heard: 

1. Give me a goal: “To save, it’s always necessary to have an objective: buying a small washing machine for example is a goal,” said one of our interviewees.  People had varying needs, goals, and dreams. We found that for people who were natural savers, access and simple facilitation might be all that is needed to encourage savings. Others needed more of a nudge and suggested that pre-set goals (such as buying a new pair of sneakers, or a TV) would do the trick. Making these goals attainable is also key.
2. Surprise me: People we talked to wanted to forget that they had a small reserve of money. As with our interviewee who put money away in his pack of cards, others also liked the surprise in seeing the balance and realizing the amounts accumulated.
3. Trick me: “Make me save even if I don’t know about it – especially if I don’t notice it.” A number of interviewees lacked the discipline to save money themselves and suggested they be forced or tricked into saving, whether it be an automatic amount deducted each month, or a small fee associated with paying insurance for example. This should be seamless so they don’t realize they are saving. 
4. Stop me: People constantly tried to find ways to limit spending. They often used friends’ or relatives’ credit cards. This is a creative way to pay when they are blacklisted and to limit spending (“because the card belongs to another, they better control impulse’). People wanted to start saving, but also want to be stopped from getting at their savings or stopped from making unnecessary expenditures.
5. Pat me on the back: Interviewees expressed that they like to be rewarded for ‘good behavior’; so rewards, along with some of the elements above are important. However, it was important to people that the rewards were small and “real”, such as movie tickets or a meal voucher.
6. Get me off the blacklist: Some interviewees were overwhelmed by the amount of debt they had. While debt can be a psychological barrier to savings, it can also be made into a goal. Saving up to pay off their debt can thus become an important motivation.

These conversations and the insights we drew from them told us a number of important things about how to potentially design financial products that would better accommodate people’s wants and needs.  Most interviewed were not disciplined enough to tuck away money each month, or they simply didn’t think they had enough to save. Many wanted to be tricked or surprised into saving, but they also wanted to feel that they had control over their money.  All of them felt comfortable dealing with cash; a number of them had used credit cards with mixed results, and many had been blacklisted because they couldn’t pay back. Therefore, when asked whether they would be open to transacting on yet another platform such as a cell phone (in some ways similar in their minds to a credit or debit card), many were apprehensive; however, a large number were also quite excited about the concept.

Given some of the insights above, we could think of a number of features to be placed on a mobile wallet that would fit people’s needs. For example with ‘stop me’, a mobile wallet could have a feature of customizable limits, where users would need to approve spending over certain amounts. Or, the wallet could have an “opt out” feature, allowing users to opt out of certain expenses at some determined threshold. For example, a user could set a $10 limit of spending on coffee, once that limit is reached, the wallet would warn the user or not allow them to pay. Another insight we gleaned were people’s difficulties around managing their budget and expenses, so a very simple accounting tool could be an essential tool (maybe a simplified version of mint.com or daily SMS financial tips).

Our interviewee’s pack of cards story reminds us of children breaking their piggy banks after they fill it up with coins.  Even as adults we like the idea of an unexpected amount of money after a little bit of effort.  Listening to people’s stories and practices not only gives us a glimpse into their financial world, but also inspires us to really listen and pay attention-- as the right features for the right product may be lurking just between the lines.

** The interviews were carried out by Juliana Estrella, head of Inteligencia Social Consultoria e Pesquisa; Kim Wilson, lecturer at The Fletcher School and a Fellow with the Center for Emerging Market Enterprises and the Feinstein International Center at Tufts University; Yanina Seltzer, Technical Advisor for CGAP in Brazil and Plano CDE, a Brazilian market research firm focused on the base of the Pyramid.