I consider myself a perpetual student. I love learning. I went back to school twelve years after I finished my undergraduate degree to get a Master’s degree, in large part just because I love learning. Because of that inner drive to grow and to know things, even my personal life is filled with knowledge-seeking. I read a lot– and it’s almost always non-fiction, from essays and/or instructionals written by Jiu Jitsu black belts; to learning how to understand and invest in the stock market; to understanding the mental game in athletics; to books about The Hidden Side of Everything. Another way I feel I am constantly educating myself and feeding my addiction to knowledge is by listening to the Freaknomics podcast, which I have posted about before.
Just last week, I had mentioned in my post that I am a better coach than a salesperson. Well, interestingly enough, in the time since I published that post I happened to listen to a Freaknomics podcast that hit close to home, in that regard. The podcast laid out some interesting ideas about motivation and about making the “right” decisions for ourselves.
Economists call it “incentivizing.” Basically, incentivizing is giving people a reason to do something (i.e., providing an incentive.) The podcast was talking about an experiment with school children and trying to incentivize them to make healthy eating choices.
Anya Samek, one of the researchers, explains the setup like this: “We’re using this after-school program called the Kids Café. And there are 24 of these in the city of Chicago and surrounding area. Kids come there, they receive some help on their homework, and then they’re given free food. And what we do is we randomize these different Kids Cafés. And when I say randomize I mean we randomly put different Kids Cafes into different treatments. We have one treatment where we tell the Kids Café just carry on as you are, but at the end of the food-choice we’re going to give kids a second choice, it’s going to be which dessert to have. And they can either have the healthy dessert or the less healthy one.” (The healthy dessert ended up being some dried fruit and the unhealthy dessert ended up being a low-sugar, whole wheat cookie. The podcast explains in more detail how and why those two options, specifically, were decided on.)
The early results of the experiment showed that less than 20% of the children were choosing the healthy option. So, as the experiment went on, the researchers brought some education into the picture. They came in for five days where they met with the kids and talked about how fruit is the healthier choice, how it’s good to be healthy. They showed them the food pyramid and they told the kids that choosing fruit makes them stronger on the playground and smarter in school. Well, the choices by the children didn’t change, at all: 80% still chose the cookie.
The next step of the experiment is what really captured my fascination. The researchers came in another time, without the educational piece, but, instead, they introduced some self-described “lame” incentives for choosing the fruit. If the kids chose the fruit, they could choose a prize: either a pen, a rubber bracelet, or a little, plastic trophy. Even though the incentives weren’t all that great, just having incentives present, alone, made an immediate, significant impact on the choice-making of the children. Amazingly, the numbers completely flip-flopped and 80% of the kids chose the fruit. They found consistent results in any of the Kids Café setups they tried it in.
It might be easy to discredit the results and suggest that something like that would only work on kids– but the same general idea of incentivizing works with adults, too. Anya mentioned that there is a small, non-profit grocery store in Chicago that started an incentive program where they would give one dollar to customers who bought five different types of fruit. They then compared that to a separate treatment where adults are just receiving education about the importance or eating fruits and vegetables. Guess what? The results were very similar to the results with the kids.
It got me to thinking about incentives, in general. Don’t all grocery stores do this, already? They print weekly ads with coupons, essentially incentivizing you to buy certain products at a certain price point. Other stores do the same thing, obviously, with their products. What about the gas station? I just used a coupon yesterday that gave me five cents off of each gallon of gas at a particular station. What about credit cards that have rewards programs or give cash back on purchases?
The big, interesting takeaway from all of this, for me, is that I think the experiment (and the other examples) proves that people respond well to incentives. I think it also essentially proves that education isn’t enough; but that’s something we already know. The researchers did go on to say that they see the best long-term results when education is coupled with incentives, which makes a lot of sense.
But how does this all relate to our financial health? Well, there’s very little chance I’m going to start handing out pens and little, plastic trophies anytime soon. 😉 If education doesn’t work– and we know that education, alone, doesn’t– it means I need to become a much better salesman. I need to get better at incentivizing.
The other researcher from the study, John List, made an excellent point when he said: “The general point here about all of this is that you have many problems where what you do now affects what happens later, and usually we choose the easier decision or the easier action now. You think about savings for retirement, you think about getting doctor check-ups, you think about going to school, you think about engaging in risky behaviors, you think about adopting green technologies for our houses. In all of these cases we usually choose the bad action. And that action is to do what’s best for us now to the detriment of the future, to the detriment of our future self. And nutritional choices right now are just one of these elements that we face in society where we need kids to recognize the choice that you make now will critically affect your outcome in the future.”
Solid financial health often requires us to make the “tougher” decision in the now. Don’t put something on your credit card. Don’t keep up with the Joneses. Don’t eat out three nights a week. Put some money into your savings instead of splurging on something.
If we really need to be incentivized, that’s tough for me to do, externally. I can’t give out gold stars for making smart choices. But what I hope I can do is to help you see that you have internal incentives to turn things around. I hope to help you see that you can incentivize yourself.
Here’s my best, new effort at being a better salesman: You have built-in incentives everywhere you look in your financial life. They’re much more tangible than “eating fruit makes you feel better.” For every dollar of your debt that you pay off, you save yourself money in interest over the long haul. Depending on the type, size, rate, and length of the loan, that could mean hundreds or maybe even thousands of dollars. Every time that you stay within your budget for the month, you save yourself from having to take on debt, which, again, saves you a lot of money over time. Having money is a nice incentive in and of itself, but having money means being able to do more of the things that are important to you, whether that means going on vacations, buying new camping gear, or spoiling the grandkids. Think about how many gold stars you can by yourself with all the money you’re not blowing… Also, not struggling with your finances just makes you feel better (see what I did there? :p )
I can try and sell you on a better financial life until I’m blue in the face but education isn’t enough. We need both education and incentives. If we have intrinsic incentives as opposed to extrinsic ones, it’s all the better. So, even if I can’t give you a rubber bracelet, tell me, what do you want to accomplish? How can I help you accomplish it?