How to Nudge Yourself Into Better Financial Decisions

Checked against primary sources by the Editorial Team. Every figure in this article was traced to the study it came from, including the ones that contradict what we previously published. How we review.

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Most of us know we should save more. Knowing it rarely changes what lands in the account. Economists who study this suggest the gap has less to do with willpower than with how the choice is set up. This article walks through what the original studies found, what they did not, and how you can use the logic in your own routine.

Where the idea of a nudge comes from

Richard Thaler and Cass Sunstein wrote the book Nudge to argue that the way a choice is presented shapes what people pick. They call this choice architecture. Their approach, which they name libertarian paternalism, aims to protect people from habits like inertia and limited attention by steering them toward better choices, while leaving every option open.

That framing matters for your own money. If inertia is the problem, you can design around it instead of fighting it every month.

What the automatic enrollment study found

Brigitte Madrian and Dennis Shea studied a large, publicly traded company in the healthcare and insurance sector. The company switched from asking employees to opt in to its 401(k) plan to enrolling them automatically, at a default contribution rate of 3% invested fully in a money market fund. The authors compared employees hired before the switch with those hired after.

They report that participation among employees at three to fifteen months of tenure was 37% under the old opt in rules and about 86% under automatic enrollment. They also report that 61% of new hires stayed with both the default contribution rate and the default fund, and that among employees hired before the change, under 1% picked that same combination.

The authors read the stickiness as a mix of passive acceptance and employees treating the default as a company suggestion. Their paper also shows the flip side: many people stayed at a low default rate they might not have chosen themselves. A default helps people start, and it can also keep them parked.

A correction to what we published before

We previously wrote that participation rose from around 60% to more than 90% across employers. We could not trace that to the study. The figures in the source come from one company and read 37% and 86%. A later review by Beshears, Choi, Laibson, and Madrian summarizes the wider evidence on how defaults shape retirement saving, but we did not rely on it for any number in this article.

What Save More Tomorrow added

Defaults get people started. Thaler and Shlomo Benartzi asked a different question: how do you get people to save more over time without it feeling like a loss? Their program lets employees commit in advance to directing part of future salary increases into retirement saving.

The authors report that 78% of employees offered the plan in its first implementation joined, and 80% of those stayed through the fourth pay raise. Participants raised their average contribution rate from 3.5% to 13.6% over 40 months. The authors point to bounded rationality and self control problems as the reasons many workers save less than they plan to.

Notice the structure: the decision is made once, today, about a future you can picture, and then the system carries it out. Willpower plays a small part.

What the law now does

Congress later wrote part of this idea into law. According to the IRS, the SECURE 2.0 Act requires newly established 401(k) and 403(b) plans to enroll eligible employees automatically at a contribution rate of at least 3% of pay, then raise it by one percentage point each year until it reaches at least 10%. The IRS notes exceptions for new and small businesses, church plans, and governmental plans, with the requirement starting in the 2025 plan year.

If your employer offers a plan, check how it handles enrollment and escalation. We cannot tell you what rate fits your situation; that depends on your finances, and a licensed professional is the right person to ask.

How to use this without an employer plan

The studies above cover workplace retirement plans. We did not find a study among those we read that tests the same tricks on everyday spending, so treat the following as ways to borrow the logic, not proven results.

• Make saving the default. Madrian and Shea found that people tend to stay where they are placed. A recurring transfer on payday puts you in the saving state unless you act. Evidence for the behavior: Moderate, because it rests on workplace plans.
• Tie increases to raises. Thaler and Benartzi's participants committed in advance. You can decide now what share of your next raise goes to saving. Evidence: Moderate, from a small number of implementations.
• Review a default on a schedule. The Madrian and Shea data show some people stayed at a low starting rate. A calendar reminder twice a year to look at yours keeps the default from becoming a trap. Evidence: Low, because it is our reading of that finding, not a tested intervention.

Personal budgeting tools exist that help automate categories and track spending. We name that category without a link because we have not rated any specific product.

Both studies come from specific employer plans, so we cannot say how well the results carry over to people outside them. A nudge can help you act on a decision you have already made; it does not make the decision for you.