The government-backed auto-enrolment pension policy in the UK has done a lot to improve pension savings for the population since it’s inauguration in 2012. As of March 2017 more than 7 million workers have been automatically enrolled and 2016 saw £87.1 billion pounds saved into pensions. The success of this initiative is in its name – auto enrolment means just that – it is automatically undertaken and therefore an individual’s natural inertia with regards to immediate bigger financial savings decisions is taken out of the equation. Richard Thaler, the Economics Nobel Prize winner, published a book Nudge: Improving Decisions about Health, Wealth and Happiness with Cass Sunstein talks about how you can improve your life by taking a few steps to counteract inherent biases and how businesses can influence decision making while maintaining freedom of choice. In other published work, he also goes on to talk about other behavioural economics; namely: loss aversion and self-control and how they impact your life. Loss aversion is the concept that people are more likely to notice a loss than a gain and therefore in the current low interest rate environment we often hear people say that it’s not worth moving to a better rate because the gain is incremental and not worth the bother. Self-control as a notion discussed in behavioral economics is also another element that we see on a daily basis. The long-term gain for example of changing your bank account to get a better rate is irrelevant in comparison to the hassle that we have to face now in order to benefit in the long run. We are increasingly interested in an ‘I want it now’ culture and are unwilling to wait for any benefits, and yet in order to overcome inertia in your savings, you should be looking at your current savings situation on a regular basis – regardless of the interest rate environment, which is frankly, out of your control. Savers need to take compound interest into consideration as well as getting into the habit of saving consistently. Once a cash saving mechanism is in place, the long-term gain of managing your cash can be seen. A cash management service, like the Insignis model, ensures that these behavioural economic elements are removed from your savings equation. Regular assessment and best accounts according to your scenario will go a long way to address the self-control economic element and if this is done on your behalf without the hassle, you will prosper by default. The cash savings industry would benefit from this type of push to automation and consequential psychological benefits in order to get the best from cash. While you can’t change industry regulations and interest rate decisions you can change your savings portfolio by simply getting in touch. We’ll do the rest.
Cash Management – the auto-enrolment for your cash savings
by Insignis Cash Solutions in Industry Perspective