Evaluating the impact of commitment and flexibility preferences on the saving behaviour of individuals who perceive financial scarcity

Abstract

This study tests and explains how the opposing preferences for commitment and flexibility impact the saving behaviour of individuals who perceive financial scarcity in South Africa. Those who perceive financial scarcity need to save to reduce the risk of unexpected financial burdens, for increased financial resilience and to accumulate assets. In this context, saving behaviour requires decision-making over time and under uncertainty. Prior research indicates that individuals are prone to present bias and certainty-effect bias under these conditions, which impact their saving behaviour adversely. Evidence also suggests that these biases drive opposing preferences for commitment to save, but also for flexibility to access savings under uncertain conditions. The interaction between commitment and flexibility preferences in saving behaviour is not well understood and requires further research in different contexts and subgroups. Thus, this study primarily contributes to intertemporal choice under uncertainty literature as it relates to saving behaviour when financial scarcity is perceived. Additionally, the study informs practice on appropriate interventions and behavioural design elements for services and products offered specifically to this customer segment. The impact of hard and soft, or more flexible, commitment treatments on saving intention (directly) and saving action (indirectly), were measured and compared between Intent and Low/No Intent subgroups. Participants' allocation to one of these subgroups were determined by their baseline saving intentions. The longitudinal experimental design of the study allowed for within-group heterogeneity analyses over time (N = 405). Both the hard and soft commitment treatments had immediate, positive effects on saving intention in both subgroups. These effects endured, and saving intention continued to increase in the Low/No Intent subgroup during the 30 days post-intervention. An intention-action gap was observed in both subgroups, moderated by the temporal stability of saving intention. These results suggest that baseline saving intention should be a key consideration when selecting the most appropriate saving intervention for an individual. Further research is required to determine why the particular hard and soft treatments were effective in the study’s context. In addition, the intervention and research methodology should be tested on other behaviours that also require decision-making over time and under uncertainty.