Save More Tomorrow (Precommitment Design)

Definition

Save More Tomorrow (SMarT), developed by Thaler and Shlomo Benartzi, is a savings program that invites people to commit now to a series of future contribution increases timed to coincide with pay raises. Because take-home pay never actually decreases, the increased saving is never experienced as a loss, sidestepping loss aversion. It layers five behavioral facts deliberately: people intend to save more but don't follow through; self-control commitments are easier to accept when they start in the future rather than today; loss aversion makes a pay cut painful; money illusion makes nominal (not inflation-adjusted) losses the ones that sting; and inertia, once enrolled, keeps people in the increasing-contribution plan rather than requiring repeated willpower.

In the Book

Chapter 6 traces SMarT's first deployment in 1998 at a midsized manufacturer, where a financial consultant found employees rejected an immediate 5-point savings increase (a felt loss) but 78 percent of those who declined accepted a plan that raised contributions by 3 points at each future pay raise. Three and a half years and four raises later, this group's savings rate had nearly quadrupled to 13.6 percent — higher than the group that had accepted the immediate increase. The chapter contrasts this with a control group that received financial education alone: a true/false financial-literacy quiz score moved from 54 to 55 after the seminar, and only 14 percent of attendees actually joined a savings plan (versus 7 percent of non-attendees) — direct evidence that information alone barely moves behavior compared to redesigning the choice itself. The chapter later shows SMarT combined with automatic enrollment (Safelite Group, 2003) achieving even higher participation, and reports that by 2007 39 percent of large U.S. employers had adopted some automatic-escalation plan.

Why It Matters

This is a generalizable recipe, not just a retirement-savings trick: schedule the hard part of a change to land on a moment that already feels like a gain (a raise, a renewal, a milestone), and let inertia carry the commitment forward instead of requiring renewed willpower at each step. It shows precommitment devices can be built into a system's defaults rather than relying on individual discipline, and it demonstrates empirically that redesigning the choice beats persuading or educating the chooser.