3 Behaviorally-Informed Ways for Gig Platforms To Improve Employees’ Financial Resilience
Discover how gig platforms can overcome potential impediments so that workers can improve their financial resilience.
Gig work and entrepreneurship make up a significant percentage of today’s economy. They also come with behavioral challenges for workers to build financial resilience. Hans Frech La Rosa, senior behavioral researcher at Common Cents Lab, discusses how gig platforms can overcome potential impediments so that workers can improve their financial resilience.
As a vital source of income for workers in countries on nearly every continent, gig work and entrepreneurship represent the backbone of many households and even national economies. But while this novel way of working can provide flexibility and increased wages for many, it comes with unique behavioral challenges for workers to build financial resilience and make the most of opportunities to thrive.
Our team at the Common Cents Lab, a behavioral science nonprofit at Duke University, recently took a hard look at gig work platforms and digital marketplaces in Latin America to understand these potential impediments and how to overcome them so that workers could best improve their financial resilience.
This region is a perfect ground zero for this exploration as independent workers account for 40% of all workers, and micro, small and mid-sized entrepreneurs account for 99.5% of all firms.
Across different types of gig work and platforms, we consistently observed three behavioral challenges that negatively impacted workers’ ability to improve their financial resilience. By addressing these issues as product design or policy improvements, gig work platforms and digital marketplaces can play a critical role in improving their workers’ financial health and resilience, regardless of their region.
And given that financially healthy workers are more productive and cause fewer workplace accidents, this is more than just the right thing to do — it can serve as a competitive advantage and a way to retain highly sought-after workers. Here is how behavioral sciences can help set gig workers up for success:
Automate or Simplify Choices To Expand Benefits
In a typical work arrangement, employees work a fixed number of hours, receive benefit packages curated by human resources and usually have access to the tools they need to perform their work.
However, in most independent work arrangements, workers often must choose, fund and administer their own equipment, health insurance and retirement savings. The sheer number of choices this requires can lead to what behavioral scientists call decision paralysis, or being so overwhelmed that one makes no choice at all.
We found that workers made suboptimal financial resilience decisions, such as not using insurance to protect themselves or their work assets, not saving for retirement or missing out on income opportunities simply because they faced an exhausting set of choices.
To help alleviate this pressure and encourage more positive behaviors, gig platforms can make the right behaviors automatic. For example, organizations that automatically enroll their employees in retirement plans have higher participation rates (92%) compared to those who use opt-in enrollment (62%). Similarly, platforms that distribute payments to gig workers and entrepreneurs could automatically enroll them in a savings account to put aside a portion of their payments for emergencies or slower months.
In situations where these automations are not feasible, platforms can leverage critical moments such as onboarding or payment day to prompt or remind workers to set aside money for savings. In a separate research project with the fintech Qapital, it was found that these simple prompts with pre-defined saving targets can double the number of people saving.
See More: Digital Transformation: The Case for Benefits
Reset Reference Points To Maximize Hourly Income
A recent study shows that drivers’ schedules are influenced by a phenomenon known as income targeting. This occurs when self-scheduled workers stop working after meeting a target amount of earnings, regardless of their current hourly rate. For instance, a driver might stop earlier on a high-demand day because they reached their target of $100 quickly, and then they may drive longer hours on slower days to reach their target of $100. This is a less efficient form of working and, from a platform perspective, is one of the causes of understaffing.
Solving this behavioral challenge requires changing workers’ reference points. In the study we ran with Qapital, we used timely messages at the beginning and middle of the week to encourage gig workers to review and set up new income goals. By updating their reference points, these workers increased their weekly income by $7-$20 compared to the control group.
Gig platforms and digital marketplaces have a unique opportunity to capitalize on their deep reservoir of user data to provide timely and accurate insights for workers. Doing so could help them adopt new reference points that enhance their efficiency and income growth opportunities while smoothing out staffing challenges.
See More: How Technology Can Help the Construction Industry Overcome Staffing Challenges
Help Workers Pre-commit to Future Financial Needs
Having adequate financial resources to protect against emergencies or financial shocks is key to a worker’s resilience. But people are notoriously bad at forecasting these needs and systematically underpredict their weekly and monthly future overall expenses compared to their actual expenses.
This phenomenon is driven by a behavioral principle called availability bias, which says that people tend to judge the probability of events occurring in the future based on how easily we can remember them. For gig workers and entrepreneurs, failing to accurately estimate how often they need to renew their licenses, pay taxes, and fix their equipment or vehicles can drive them to use urgent but costlier measures such as payday loans instead of their savings.
In our prior research with Digit, we demonstrated that prompting people to pre-commit a portion of their tax refund to savings increased savings rates for those who decided to save by ten percentage points. Likewise, gig platforms have an opportunity to help protect workers from falling victim to availability bias by encouraging them to pre-commit to saving for those future expenses before being tempted by more immediate (but perhaps less urgent) needs. An ideal time would be before their weekly income is disbursed or before any bonuses are distributed.
More Resilient Workers through Behaviorally-informed Product Design
As digital platforms continue to grow worldwide, our research and these lessons from Latin America provide insights to help them grow the financial resilience of the gig workers and entrepreneurs they rely upon.
These organizations and platforms are both uniquely positioned to help workers genuinely thrive and have a vested interest in fostering these outcomes. By encouraging positive financial behaviors, gig platforms can attract and retain the best workers, avoid staffing inconsistencies and maximize productivity.
From critical redesigns and innovative new products and features to simple nudges or well-timed reminders, behaviorally-informed improvements can minimize the impact of inevitable financial shocks for workers, maximizing their chances of recovering afterward and thriving.
What steps have you taken to ensure gig workers improve their financial resilience? Let us know on Facebook, Twitter, and LinkedIn.
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