Executives of Bank of America's Merrill Edge program have taken a page from A Christmas Carol to prompt investors to change their financial behavior: They're offering them a glimpse of their future selves. Through a new online tool that ages a consumer's photo, investors can see a projection of what they'll look like many years down the road.
The idea behind the new tool is to motivate Americans to save more for their retirement and to engage in conversations about their financial future, says Alok Prasad, head of Merrill Edge, an investment management program for mass-affluent customers with $50,000 to $250,000 in investable assets.
The tool-coyly named Face Retirement -was prompted in part by a joint New York University and Stanford University study that found that people who saw images of their older selves were more likely to save more for retirement than those who were spared the vision.
"To people estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now," they write in the study, "Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self," published in the Journal of Marketing Research.
"What we wanted to do was bridge the gap between the self of today and the distant self of the future to make people feel and recognize and understand that the decisions they make today really, truly have an impact on who they are in the future," said Hal Hershfield, assistant professor of Marketing at New York University and the lead researcher on the study.
The Face Retirement tool, which Merrill Edge launched in early December, shows investors not only images of what they will look like at various ages in the future, but also forecasts of costs of living in selected years.
For example, in 2047, the cost of living will have increased a projected 222%, with bread going for $7.41 a loaf. It also includes an estimate of how much consumers will need to retire and the steps they can take to begin saving.
The tool was developed to address the retirement worries that appear to consume mass-affluent consumers, said Prasad. In its most recent semiannual report on the mass-affluent market, Merrill Edge found that half of the Americans in this demographic have saved less than $250,000 for retirement and that 56% plan to retire later than they were compared to a year ago.
Interestingly, the research found that concerns about retirement diminish when individuals are discussing these issues and proactively seeking help with their future retirement needs. "The level of concern goes down significantly for consumers who are engaged and are talking about the topic, or getting advice from other professionals or friends and family," said Prasad.
Indeed, greater investor engagement is a key goal of the tool. Users are able to post pictures of their future selves on Facebook, provoking what Merrill Edge hopes will be greater dialogue among the mass affluent.
"Our hope is that as they get engaged, they get more insights, they get exposed to the topic and hopefully take action," said Prasad.
In one of the four experiments conducted as part of the study, individuals who saw images of their future selves allocated twice as much money to long-term savings accounts than those who did not. In another experiment, they contributed 30% more to their 401(k)s.
The connection to the "person they will one day become leads to an increase in savings." Hershfield said.
Greg Davies, managing director and head of Behavioral Finance and Investment Philosophy at Barclays, agrees with that sentiment.
"It increases our sense of identification with our future self, making us more likely to forego current desires in order to achieve something that will benefit us in the future. This is crucial in both investing and savings behavior," he wrote in an email.
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