‘Emotions are always on’: How Dreams uses behavioral science to help consumers save

By now, consumers have a well-documented history of avoiding their finances. With anxiety and procrastination acting as the pillars of personal finance, money management has been a source of dread for quite some time now.

But a lot of companies are hoping to change that -- with behavioral science playing an increasingly big role. 

Founded in 2014, Dreams is a Swedish financial management app built on the idea of behavioral science. The goal, says CEO and founder Henrik Rosvall, is to 'repackage banking' to get people to feel more motivated about saving money. 

Rosvall started looking at other industries -- health and exercise apps, in particular -- and how they go about motivating their users. Often, their methods involve focusing on emotional aspects. He wanted to translate that sentiment into investing and saving. That meant zeroing in less on the financial side of money management and more on the end-goals.

Dreams’ features include the option to save for big and small goals, called dreams. The user defines these dreams, describes them, and then starts saving for them. The idea is to keep the dream in the forefront of the consumer’s mind, so that the saving mechanism feels purposeful, rather than endless.

Consumers can save by allocating money into different dreams. A dream that is set to take less than three years takes the form of a savings account. A dream that is expected to take over three years takes the form of an investment account.

“Let's talk about dreams, let's talk about goals,” said Rosvall. “And then from there, we start building up the confidence, helping people find the money that they didn't think they had and start allocating that money into different goals in life.”

What may make Dreams stand out is what it calls its ‘saving hacks’. The account includes hundreds of saving tactics consumers can choose from -- both automated and manual -- to help them put money away. 

One example of an automated hack is called the Thief. The Thief takes small amounts of money from the main account at random times during the day and allocates them to a given dream, without the user knowing. Other saving hacks involve things like transferring money every time a favorite soccer team scores or every time there’s a full moon.

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The person sitting behind these features is Elin Helander, chief scientific officer at Dreams. Before joining the company, she was a research assistant at the Karolinska Institute in Stockholm, one of the world’s leading medical universities and Sweden’s largest center for medical academic research. 

As chief scientific officer, Helander spearheads a team of cognitive scientists that research cognitive behavior and use that research to design new features to help people take positive actions towards managing their finances.

Helander says their methods focus on the concept of ‘intention action gap’ which basically means people have intentions to do something but tend to fail in executing their plans because their emotions get in the way. She mentions retirement funds as an example: even though logically we know we need to save for retirement, emotions tend to prevent us from doing so. 

“Your emotions are always on -- you can never turn them off. And so therefore, all of our decisions are emotionally driven,” said Helander. “And when we talk, we often say things like you have rational decisions and emotional decisions. and that's essentially the problem. All our decisions are emotional.”

She says banks focus a lot on helping with the intention gap -- teaching people about their finances and showing them problems with their spending. But they fall short in providing actionable methods to tackle these problems. She says it’s the same logic in showing how climate change is affecting the planet through a graph to get people to live more sustainably.

“With that information, do we change our behavior accordingly? No,” said Helander. “So thinking that a graph covering customers’ last week’s spending on beer would be enough to change their behavior for saving more money is nothing but naive.” 

All the saving hacks offered on the app are built on behavioral science principles. One example Helander gives is temptation bundling, which is when you couple something that you want to do with something that you should do. A saving hack where this comes into play is a game on the app called SpaceX. Every time the user scores a point, a sum of money is put away into their dream.

“So what we're doing here is taking something that's perceived as fun -- like playing a game -- and bundling it with something that is oftentimes perceived as boring,” said Helander. 

The aforementioned Thief feature is another example. What banks tend to do, says Rosvall, is make consumers aware of their incompetence and in that way, increase financial literacy. But that doesn’t really lead to action.

Through the Thief feature, Dreams inverts the process. It starts by building good behavior -- the thief secretly takes money while the user steadily gets used to spending less without even realizing it. After a while, the user gets notified about their better spending habits. The saving hack  builds on the idea of nudging -- a behavioral science concept that says positive reinforcement and indirect suggestions can influence a behavior. 

“You automatically form a habit of having less money in your savings account. So you become unaware of your competence at saving money,” said Rosvall. “And then we can remind you of your competence, so you become aware of your competence at saving money. So it's like starting on the other end of the spectrum.”

Another technique that has gone into Dreams’ features is increased empathy for a user’s future self. When users create a new goal, they fill out sections describing that goal, including giving the goal a name, describing why it’s important to them, how much money they want to save, and when they want it. The whole process helps the user envision their success in achieving that particular dream.

“What we have forced your brain into doing there is to spend time in the future to make it more concrete,” said Helander. “The more time you spend in the future, the more real it will feel, and you will feel a connection to your future self.”

Through its B2C strategy Dreams reaches around 450,000 consumers in Sweden and Norway. That’s about 16% of people between the ages of 20 and 40 in both countries.

Last year the company launched its B2B services as well, offering up its platform through a white label agreement to financial service providers. It’s partnered with banks like BNP Paribas and Ålandsbanken, a Finnish commercial bank with branches both in Finland and Sweden.

The company also works with fintechs. In May last year it partnered with Silverlake Symmetri, a Singapore-based subsidiary of Silverlake Axis that offers software solutions to industries like banking, insurance, retail, and payments.

Behavioral science seems to be spreading in fintech. Zogo, an app aimed at Gen Zers, makes a game out of financial literacy by adopting a model akin to that of Duolingo. Yotta, a prize linked savings account, uses gamification to encourage users to save.

As for what’s next for Dreams -- Rosvall said the US seems to be ‘a natural extension’ for its B2B journey. As banks struggle to keep younger consumers’ interest, Dreams could come in as a solution, he said.

“if the banks don't keep the younger audience, they will miss out on this whole big wealth transfer that is coming up,” said Rosvall. “So they feel a sense of urgency in terms of solving the problem of having the younger crowd still being engaged with their products. So that's very clear from the discussions that we're having with American banks.”