“How can we get people to save more for retirement?” It is unlikely that any financial planning question has been the focus of more white board brain storming sessions, the topic of more conference breakout sessions, or the subject of more academic papers. Yet for all of the effort expended on getting Americans to save more, there has been frustratingly little progress in changing behaviors.
It has become painfully clear that changing participants’ behavior is difficult, but have we looked closely enough as to why it is so difficult?
An article in the current issue of strategy + business might shed some light on that question. Jointly written by a research psychiatrist (Jeffrey Schwartz at UCLA), a vice president of learning and development (Pablo Gaito at Cargill) and a former EVP of American Express (Doug Lennick, co-founder of Lennick Aberman), the authors provide insights from neuroscience to help reframe behavior and drive organizational change. Their primer on neuroscience and many of their principles for effecting organizational change can be used as guideposts for developing new strategies to change participant behavior.
Schwartz cites three areas of the brain that evolved early in humans and are responsible for many of our thinking patterns, though the information processed in these areas is often not brought to our conscious attention. They are:
1. Basal ganglia – the brain’s “habit center” which manages semiautomatic activities such as driving and walking. The processing in the basal ganglia is so rapid compared to other brain activity that it can feel physically rewarding. Not surprisingly, people revert to this type of processing whenever possible.
2. Amygdala – the source of strong emotions such as fear and anger.
3. Hypothalmus – manages our instinctive drives.
How habits are managed by the brain
Schwartz explains that when neural patterns in the basal ganglia associated with a particular habit are invoked, they become further entrenched and forge connections with one another and with other functionally related brain areas. As these connections become stronger and more compelling, habits, both good and bad, become quite literally ingrained in one’s brain.
Interestingly, most brain activities do not systematically distinguish between an activity and an avoidance of an activity. So while procrastinating implementing a retirement plan is a passive “non-activity”, it becomes ingrained in the neural circuitry in much the same way as “active” bad habits.
When people are challenged to break a habit by doing something different, it often triggers fear (sometimes called “amygdala hijack”) or “exhaustion disproportionate to the actual provocation.” In this emotional state, change is resisted, “the capacity for rational and creative thinking is diminished”, and people revert to their rote behaviors. (“I’ll think about increasing my 401(k) contributions tomorrow.”)
Changing the brain
Though replacing bad habits with good ones is no doubt an uphill battle, it is a winnable one. Indeed, recent research has shown that the even adult brains are more “pliable” than what was long thought. However, harnessing the brain’s neuroplasticity (its ability to form new neural connections) to develop positive new habits requires an approach “that works with, not against, the predisposition and capability of the human brain.”
The authors provide several principles of change and 6-step process for propagating change throughout an organization. In effort to apply these to our opening questioning, I have immodestly adapted their knowledge and insights so that DC plan providers might “change the plan participant brain.”
Changing the plan participant brain
Well, kind of. There is, in fact, no 6-step (or n-step) replicable process for changing plan participant brains that will lead to dramatic, sustained increases in plan participation and contribution rates and supplementary retirement planning. I believe DC plan providers can attain those goals if they are willing to transform the way retirement services are delivered. The “secret sauce” of the successful transformation will be characterized by tighter integration and communication between the plan provider, plan sponsor, and participant.
That disclaimer notwithstanding, some of the non-proprietary ingredients to any sauce recipe include the following:
1. Participants need to recognize the need for change. They need to be made aware of the facts, however painful, and understand the connection between what they choose to do going forward and the likely outcomes.
2. Relabel activities. “Though applying a mental label may seem simple, it has often been shown to calm emotions and engage the rational centers of the brain.” The authors describe an experiment done by neuroscience researchers to subjects connected to brain imaging devices. The subjects were shown pictures of horrific traffic accidents and there was an immediate rush of anxiety and fear. When the subjects were asked to think about the images as EMT workers coming on the scene, they found easier to maintain a clear, calm perspective. “Relabeling changes the way the brain processes information in such emotion-related and instinct-related areas as the amygdala and hypothalamus” and “activity shifts rapidly to the prefrontal cortex” (the part of the brain responsible for executive functions).
For our participants, they are not “cutting back spending”, but instead “buying leisure time in retirement”.
3. Awaken the “impartial spectator”. Participants need to consciously “think about what they are thinking.” They need to consciously be aware of their implementation of improved savings behaviors and goals. Adam Smith described this self-directed reflection as “an impartial spectator.” Awakening the impartial spectator allows participants to recognize their old ways do not serve their future selves well and their behaviors can be reshaped. “When a person repeatedly pays conscious attention to desired thoughts and related goals, the processing of these thoughts and goals stabilizes and moves to the part of the basal ganglia called the caudate nucleus, which lies deep beneath the prefrontal cortex.” The basal ganglia-caudate nucleus complex “shifts circuits into place so that ways of thinking and acting that at first seemed unfamiliar soon become habitual.”
4. Reflect on Expectations and Values. A new image of the desired end state replaces old fears or expectations. However for the image to be a sufficiently powerful motivator to encourage the participant to pursue positive actions over the long term, it cannot be general (e.g. “a fulfilling retirement”) but must be “specific, tangible, and desirable” (e.g. “build a beach house where my children and grandchildren will congregate and create happy memories that will endure throughout their lifetimes”).
5. Focus on the good. “Keep attention focused on the desired end state, not on avoiding problems.” Processes need to be established that make it easy for people to do the right thing to facilitate this goal-directed, positive reinforcement.
6. Repetition and time. This is not a short-term process. These steps, particularly 4 and 5 must be repeated. Frequently. For a long time.
7. Cultivate cognitive “veto power.” Participants need to be able to “rapidly consider outside provocations and choose to stop dysfunctional impulses before they lead to action.” When the market drops 25%, participants need to have the tools to override their initial urge to sell everything and start stockpiling grains and canned goods. To do this they will need…
8. Support. Whether it is applications and tools, a trusted advisor, or some combination, participants will need to know that support is available for them whenever they need it and however they prefer it.
9. Achieve “progressive mindfulness”. This zen-sounding aspiration is achieved when participants “gain the capacity to recognize their own thoughts in the moment, resist the amygdala hijack, and take crises in stride.” “Productive values become the basis of decisions, especially at times of stress.” A kind of “self actualized” plan participant, if you will.
There’s your shopping list. Now get cooking!