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Goal Setting and Saving in the FinTech Era

Journal: Journal of Finance

Date: 20240601

Author: Gargano, Antonio; Rossi, Alberto G.

Abstract:
We study the effectiveness of saving goals in increasing individuals' savings using data from a Fintech app. Using a difference-in-differences identification strategy that randomly assigns users into a group of beta testers who can set goals and a group of users who cannot, we find that setting goals increases individuals' savings rate. The increased savings within the app do not reduce savings outside the app. Moreover, goal setting helps those individuals previously identified as having the lowest propensity to save. Matching App user survey responses to their behavior highlights the relative merits of monitoring and concreteness channels in explaining our findings.

Link: Google Scholar

Background and Context

Research Motivation

Many individuals do not save enough to withstand adverse income shocks or prepare for retirement due to behavioral biases, but little is known about how to correct these biases at scale.

Study Setting

The study analyzes data from an Italian FinTech app called Gimme5 that allows users to set savings goals and invest small amounts in mutual funds.

Methodology

The research uses a difference-in-differences approach by analyzing 122 randomly selected beta testers who received early access to goal-setting features compared to regular users.

Goal Setting Increases Monthly Savings

  • Users double their savings when using goal-setting features
  • Average monthly savings increase from €28.75 to €57.49
  • Effect is statistically significant and economically meaningful

Goal Categories Distribution

  • Half of users set generic savings goals without specific purposes
  • Travel is the most common specific goal category at 20%
  • Other specific categories (Car, Hobby, House) each comprise less than 10%

Dynamic Effects of Goal Setting Over Time

  • Strongest effect in first month with €45 additional savings
  • Effect stabilizes at €10-20 per month long-term
  • Persistence indicates more than just initial enthusiasm

Investment Fund Selection by Goal Type

  • Majority (55%) choose balanced funds
  • 32% select fixed income funds
  • Only 13% opt for pure equity funds

Goal Achievement Rates by Category

  • Generic savings goals have highest completion rate
  • Specific categories have lower achievement rates
  • Car and house goals are hardest to achieve

Contribution and Implications

  • Demonstrates that simple goal-setting features in FinTech apps can effectively increase personal savings
  • Shows that "soft" goals without penalties can work at scale
  • Provides evidence that digital tools can help address behavioral biases in saving decisions

Data Sources

  • Monthly savings data from Table VI showing effect of goal setting on net deposits
  • Goal categories distribution from Figure 3 bottom-right panel
  • Dynamic effects from Figure 7 showing coefficient estimates over time
  • Fund selection data from Figure 3 bottom-left panel
  • Achievement rates derived from Table III goal achievement analysis