Can avatars lead to a better retirement? No, I am not talking about some sci-fi version of our future lives. I hope not anyway, as such futures tend to be more dark, wet and dystopian than utopian – at least in the movies I have seen.
We live in the age of nudges, popularised by the work of Thaler and Sunstein and adopted by the British government via its Behavioural Insights Team.
Auto-enrolment is an example of a government-led nudge. The idea is that people are less likely to opt out, so more will save towards their retirement. A win-win all round in theory. But has it been a success?
Since October 2012, more than 9.5 million employees have been auto-enrolled and nine out of 10 remain in a pension once opted in, according to the Office for National Statistics. The biggest increases have been in the low-paid sectors and in the age group 22 to 29. The latter is particularly good news, as we all know the benefits of saving early. That said, many employees in the private sector contribute at relatively low levels. Can something be done to encourage them to save more though?
This is where the use of avatars could play a role, according to research undertaken by Hershfield et al. They found that people not only have trouble weighing up present versus future rewards but they also find it hard to imagine themselves in the distant future; that there is a disconnect between our present and future selves.
This leads people to think of their future selves as strangers and that saving is like a choice between spending money today and giving it to a stranger, years from now. Hershfield et al showed people an aged-morphed image of themselves and found it led to lower discounting of future rewards and higher contributions to savings accounts.
Technology to age people is freely available these days.
Perhaps such technology could be adopted by providers, so that when someone signs up for a pension or is auto-enrolled, they can upload a photo of themselves and see what they look like at the age they select to take benefits. This image would show every time they log on with the aim of encouraging them to save more.
Those of us that use cashflow modelling software could ask the developers to adopt something similar. Hovering over an age could show your client what they might look like at that point, encouraging them to connect with their future self and stick to the plan crafted specifically for them.
The use of avatars would make the process more interactive and engaging, and hopefully increase the rate of saving.
That said, counselling may be required when you see what you might look like in 40 years’ time.
Claire Phillips is partner at First Wealth