Acorns has made it easier for Americans to invest in the stock market through features like “round-ups” where you can invest your spare change. Now the company is trying to tap into the minds of behavioral economists to incentivize its 4 million users to save and invest more.
Noah Kerner, Acorns CEO, announced the launch of “Money Lab” with Shlomo Benartzi, who is known for his research on retirement savings and the “Save More Tomorrow” (SMarT) program, on Thursday at Yahoo Finance’s All Markets Summit.
Benartzi, who is a professor at the UCLA Anderson School of Management, is joining Acorns as senior academic adviser and behavioral economics committee chair. His first experiment with Acorns focused on a simple question asked in three different ways: Would you like to save $5 every day, $35 a week or $150 a month?
Though the total amount set aside is pretty much the same, only 7% opted to save $150 a month, compared to 30% who decided to save $5 a day.
“What accounts for this huge shift in preferences, even when all the choices are equivalent? Saving $5 a day makes us think about skipping a Starbucks latte (that seems doable), while $150 a month makes us think about car payments, which is a much more daunting amount to give up,” said Benartzi.
The broader implications show that a slight tweak in language can convince lower-income users to save $5 daily, which feels less daunting than a monthly lump sum.
Diversifying the Acorns portfolio
Acorns, which manages over $1 billion in assets, focuses on micro-investing but also has a debit card called Spend and a retirement offering called Later.
“We’ve solved the first big societal problem: getting people to start investing. Now we’re focused on how we can combine insights of psychology and economics to create an entire financial system that helps people save and invest — our Money Lab can really make an impact.” said Kerner.
“We want to work with academics to run experiments across our product to both measure the impact of Acorns and how it shifts behavior and encourages better behavior, like how do you get people to spend on one less ride share a month.”
Currently 25 universities including Carnegie Mellon, University of Chicago, Columbia University and Yale University have submitted project ideas for the Money Lab.
Melody Hahm is a senior writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.