We all know that time every year when we are unwavering in our decision to eat less meat, to visit our grandmother more often, to start saving money. We stand with a glass of champagne in our hand, watch the night sky light up with fireworks, and make our new years resolutions. And yet, we are also too familiar with that other time of the year when we find ourselves with that second piece of meat in our tummy, not at our grandmother’s place, without money left over to save.
Our human brain is simply wired to live in the now. From a psychological standpoint we find it very hard to think in future terms. Making it difficult to withhold ourselves from something now that can benefit us later. Getting out of debt and saving money is one of the top 10 commonly broken new years resolutions. It just doesn’t come naturally to us. Yet, we have to. What would happen if we grow old and cannot work anymore? Or if an unforeseeable accident happens?
“As people, we are focused on what we have now,” Gerard Bergsma reminds us. “We do not see the added value something can have in the future. The famous Stanford experiment researched delayed gratification. Kids are offered a marshmallow, and they can choose to eat it immediately, or wait fifteen minutes and get a second marshmallow. They more often opt for the marshmallow right now.”
Human behavior when it comes to saving
Gerard Bergsma knows his way around the finance and pension world. With an impressive track record of over 35 years of experience. He helped Enviu found the world changing company People’s Pension Trust in Ghana in 2011. In Ghana approximately 80% of the population works in the informal sector. Without an employer or registration of income, they do not build up any form of pension, risking having to work till they die. And now Gerard is CEO of People’s Pension Holding.
Throughout Gerard’s extensive career he has been fascinated by human behavior. If you give him the chance, he can talk enthusiastically for hours about this subject.
“Human behavior has always held my interest. We can be so irrational. We fall for that marshmallow right now again and again.”
“How can we get people to save more money, and more often?” is the question Gerard keeps coming back to. And now at People’s Pension Holding he is getting the chance to start searching for answers. People’s Pension Holding is now partnering with CGAP to research the impact of specific interventions.
The challenge is not to get people to start, but to keep saving
“I want to know more about the behavior behind saving for retirement, the psychology,” Gerard unfolds. “Getting in clients is not the hardest problem. It is easy to convince them that they have to save for their pension. If they can’t work anymore, they don’t get money. And they don’t receive money from the government. Plus, the concept of extended family is changing, the idea that the family takes care of each other. Children are leaving to the big cities. And finally, medical expenses are increasing as people get older.”
People’s Pension Trust has already dealt with many of the barriers for people to start saving money. Opening a bank account can be a big hassle. Providing a flexible product and making pensions accessible by mobile phone is working very well. People’s Pension Trust is also providing financial education. It seems like everything is set and ready to rock.
“We have built in flexibility in the product and have the option of partial early withdrawal. There are trust-worthy board members. Large pension funds in the Netherlands are supporting us, which also builds trust. This is how we try to eliminate all constraints for clients to start saving money.”
“But now the biggest challenge remains: These clients need to keep saving money from the average income of $2-3 per day. With People’s Pension you can save daily, weekly, and monthly. But if there is no follow-up, not much will happen. If you need to set aside money for 30 years later, for our human brain this time period is simply impossible to comprehend.”
Research behavioral tools in the informal sector
The grip of his fascination has led Gerard across continents. He moved to Boston, United States, a couple of months ago to be able to fully dive into the research.
“In the United States they don’t have mandatory pensions as we do in the Netherlands. But they started experimenting with behavioral instruments. For example, employers automatically subscribe their employees to a pension. They need to cancel their subscription if they don’t want it. 80% stays, because they have to take an active decision to step out.”
“The thing is, in the informal sector you can’t do this, because you can’t force them. But there are other options. You can remind them of their commitment, or share how much their peers are saving. This is what I wanted to examine here in Boston, and this we can research with the opportunity the World Bank is giving us.”
“There has been very little research done on behavioral tools for the informal sector. Our business model has various untested assumptions. So next month we’re starting a research pilot with 1,300 farmers in Ghana. If the pilot is successful, we can replicate this concept to other countries.”
Not only for Ghana
“I think this research can mean a lot for other countries as well, like the Netherlands and the United States,” Gerard explores. “The number of self-employed without employees is increasing. Right now they comprise about 20 to 30% of the working population. If they could save money for their pension in a flexible way and using mobile phones, that would be fantastic!”
“We think the United States of America is a modern and wealthy country. For the country as a whole this might be right, but I found that most citizens have a difficult time to even get 400 dollars together in two weeks,” he points out. “Half of the people at the age of 55 and older have zero reserves and will only receive social security. You come across quite some elderly working at Walmart or McDonalds to earn a little extra money.”
Worldwide 1.8 billion people are working in the informal sector. All with limited access to pension products that can help them to structurally save for their future. There still lies a massive impact opportunity for micro pensions. This is why Enviu brought People’s Pension Holding to life in the first place. A world changing company out to transform the global pension market for the benefit of the people! To transform people’s futures. Because all people deserve to retire with dignity at an old age. They deserve to rest their bodies and minds instead of having to work till they die!