If you are like most Americans, you are paid between two and five times month but you pay your mortgage payment only once a month. In order to make your on-time payment, you have to do careful budgeting of your income and expenses every month and even more careful budgeting if you plan to ever pay over the minimum amount due.

What would happen if someone budgeted for you by making smaller, more frequent micropayments any time money hits your bank account? Imagine if this person could also instantly identify any extra discretionary income (e.g. a tax refund) for you and allocate a portion of it to extra loan payments. This is exactly what APAsave, a pro-consumer fintech company, is doing for Americans to help them save. APA has built software to intelligently sync your income and expenses and this solution can help consumers save thousands of dollars on interest, take 5+ years off their loan term, and build home equity faster.

Given this very appealing value proposition, why isn’t everyone with a mortgage jumping to sign up? We worked with APA to understand why Americans may not be taking advantage of this fairly substantial savings opportunity. Our hypothesis was that while “saving money” should be appealing, it is not as nearly as appealing as opportunities that earn us money.  We tested this by making a slight wording change to APA’s online advertising materials. By reframing the value proposition from “save money on a mortgage” to “earn money back from a mortgage," we were able to increase click-through-rates by 59 percent. 

What is driving this effect? Why are people more attracted to “earning” opportunities than to “saving” opportunities?

To better understand how people think about financial security, in a follow up study, we  asked 800 participants to write down specific actions they could take to improve their financial security in the next month. Over 90 percent of participants could list three or more specific actions.  

However, participants who self-reported to feeling less financially secure were more likely to list “earning” actions first (e.g. work more hours, get a second job, ask for a raise) as opposed to a “saving” action (e.g., cut back on an expense, put away money).

At a quick glance, these findings might seem to suggest  that people who feel less financially secure may not have enough money to save. If we don’t have money, we can’t save it and so we prioritize ways to earn money.  However, research from the U.S. financial diaries has shown that this is unlikely to be the case. The financial diaries study found that while families feel strapped for money, this does not prevent them from trying to save it. In fact, low-income families were found to be saving on a frequent basis. The financial diaries study also found that while low income families were able to save, they were unable to build-up long-term savings due to external factors like like income volatility and unexpected shocks.

What other reasons could help explain an attraction to earning opportunities over saving? Could it be that we are more attracted to “active” income streams, rather than “passive” income streams? People who are financially struggling may desire activities that appear to provide more financial upside and less downside. While earnings feel like pure benefits, savings might feel less exciting, and less beneficial as most savings entails giving up different purchases and experiences. Thus, while experts recommend asset building, like savings or reducing debt, as a key way to increase financial well-being, we predict that these activities are not perceived to have the same psychological upside as earning money.

To test this, we asked people to choose which financial situation they would prefer. Option one: you have money in an investment account earning 0 percent interest and you have an outstanding car loan at a 6% interest rate. Option two: you have money in an investment account earning 1percent interest and you have an outstanding car loan at a 7 percent interest rate.

If the investment and loan amounts were set to be of equal amounts, we should select option one. Given the effects of compound interest, it is the slightly better option. However, this is not what happened.  In the study, a higher proportion of people with financial obligations prefered option two compared to option one. They prefered the option in which they were earning money on their saving account, even if that meant a higher interest payment on their debt.

This preference towards “active” income streams is not just an American phenomenon. The Kenya Diaries Project analyzed the inflows and outflows of 300 low income Kenyan households over one year.  One of the key findings from the study was that Kenyans want their money to be “working” for them by using excess cash to make loans or buy land, rather than to increase their saving account. Kenyans perceived that saving money was money that was not “working” for them.  

All of this research indicates that we have a natural bias towards “earning” rather than “saving” when we’re in financial distress—not because we don’t know how to save money or we aren’t trying to save money but because we perceive earning money as a more productive way to increase financial well-being. 

And while in some cases it may be beneficial to prioritize earning opportunities (such as when we are looking for a new job or investing in the market) it can also be a hindrance to asset building, and to financial well-being. 

Taking these findings into account, we can ask what is the best way to implement these insights in order to help people save (earn) more? One approach is to try and fight such behavioral biases and hope that by informing people about these biases that they will be able to overcome them.  Sadly, much of the research in social science suggest that simple warnings and hopes are not an effective way to change behavior. Given this, a better approach might be to embrace such irrational tendencies and instead of saving accounts, start opening for people earning accounts and appeal to our desire to earn more money.

Special thanks to Ting Jiang and Chaun Yuan Lee for their insightful comments, to Eesha Sharma and Punam Kellar for foundational research on having an earnings mindset a to MetLife Foundation for funding this research.  The Foundation aspires to help people build a better tomorrow through access to the right financial tools and services. Based on this research, APASave changed their name to EarnUp