As 401(k) plans have matured, so has the academic research around it. The relatively new field of behavioral economics which blends micro-economics and psychology is being used to help employees make better decisions about their 401(k) plans.
But for those of us in the financial service business, the underlying process of helping employees save for retirement is about communication – which is to say, the language we use.
Recent research by behavioral economist Keith Chen goes to that very concept when he added the linguistic dimension to how and why people make savings decisions.
In late 2011, an idea struck me while reading several papers in psychology that link a person’s language with differences in how they think about space, color, and movement. As a behavioral economist, I am interested in understanding how people make decisions. Could a person’s language subtly affect his or her everyday decisions? In particular, could the way a person’s language marks the future affect their propensity to save for the future?
Seeking an answer to that question resulted in his research study, The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets, recently published in the American Economic Review: Vol. 103 No. 2 (April 2013). The Abstract for which says
Languages differ widely in the ways they encode time. I test the hypothesis that languages that dramatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I found that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice.
You can find the layman’s version from his June, 2012 TEDtalk, Could your language affect your ability to save money. Posted last month to the website, it generated a lot of discussion. But you can see it and decide yourself. As for me, I hope the practical application arrives soon.