The role of nudges in everyday money & finance

A customer shops at a local retailer and is given the option to pick an item to cover the 90GHp (~18 US cents) balance or return at a later time for the money. We tried it, and nine out of ten times; people chose option one. The vendor simply encouraged the customer to buy more stuff by reframing the choice architecture. It was not coercive; it was just a nudge.

Our little experiment builds on the work of past and present academics, mainly in the field of behavioural economics. Nudges are imperceptible parts of everyday decision-making. University of Chicago Professor, Richard H. Thaler was awarded the 2017 Nobel Prize in Economic Sciences for his work bordering on nudges. The Obama White House appointed Cass Sunstein, a thought leader in the field of nudges to Head the Office of Information and Regulatory Affairs to help shape US public information and policy. In 2010, the UK also established the first Behavioural Insights Unit, also known as the Nudge Unit designed to apply simple changes in tackling major policy problems.

In a free society, citizens have the right of choice. Nudges are employed, sometimes unconsciously to guide decision making in favour of the “nudger” (or choice architect). It has wide-reaching applications, particularly in matters of money and finance.

We, at JS Morlu Ghana, have been following the influence of behavioural economics, and have identified four powerful nudges that are shaping how we spend money and grow wealth in Ghana.

Nudge 1: GES–SIC Life Insurance Policy

In 2019, Ghana Education Service (GES), together with SIC Life, an insurance company in Ghana, automatically enrolled teaching and non-teaching staff of GES on an insurance policy; with the option to opt-out by filing the required paperwork at GES offices countrywide. It promised a comprehensive insurance policy against natural or accidental death, permanent disability and critical illnesses such as cancer, stroke, major organ transplant and kidney failure; for 10GHS (~2USD) a month premium.

Perhaps, GES knew that if people were asked to opt-in instead, enrolment may be low and possibly render the policy ineffective. So, they nudged people into automatic enrolment and later introduced a reportedly burdensome avenue to opt-out. Some may argue it was poorly executed owing to the fierce resistance from some employees.

Nudge 2: Church Offering

Ever felt like staying away from church service when you don’t have enough for offering or quietly stepped out just before offering time? Church offerings are usually coordinated in batches; one seating row at a time. It employs “conformity effect”, a powerful nudge for prompting congregants that everyone gives, so they should too.

It’s disconcerting to be the only one seated when all others have left to deposit their funds in the offering basket. The stated reason for maintaining orderliness may be satisfactory, but it’s a subtle psychological tool that induces giving to fund the church budget.

Nudge 3: Telecommunications Companies

Telecommunication companies are heavy users of nudges. They employ countless reminders over airtime top-ups, package renewals and encourage customers to borrow at just the right time.

Forget B2C, they employ B2Me: hyper-personalised, predictive and pre-emptive services. It can get addictive, but it’s not coercive. In the end, the customer’s liberty of choice is preserved.

Nudge 4: Financial Inclusion

Financial institutions in Ghana have come a long way. From the early days of cumbersome paperwork and prohibitive protocols; processes are more simplified and intuitive now.

As a result, clients can now apply for and open bank accounts, save and transact quite easily. Investment requests can be processed over a simple call, text message or online request. Clients can now buy government treasury bills from the comfort of their homes using a mobile device. It may seem like a no-brainer, but for those whose lives straddle the reforms, they appreciate the nudge it presents.

To What End?

Truth is, our decisions are not purely rational. This informs what we do with money and our finances. Nudges can be a powerful tool for savings, investments and social security; with the capacity of ensuring that we don’t make a financial mess of our lives.

it could also be a self-serving tool to advance the interest of persons, employers, even the government. The underlying principle is to preserve the liberty of choice of those involved.

About the Author

JS Morlu, Ghana, is a wholly-owned and duly-licensed subsidiary of JS Morlu (USA).
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