my two cents

Should You Try a ‘Money Punishment’ in 2019?

Photo: H. Armstrong Roberts/ClassicStock/Getty Images

Last week, while doing my annual “should I even bother” dance around New Year’s resolutions, I found myself on a website called StickK. Founded by a group of behavioral economists at Yale, StickK is a free platform that enables you to make goals (or “Commitments,” capital C) and then bet money on whether you can achieve them. Every time you miss a benchmark during your weekly check-ins, the website (which you, temporarily blinded by the fantasy of your success, have given your credit card number) will charge you a penalty fee.

Before I could talk myself out of it, I set a “Commitment” to limit my spending to a specific amount every week. Then I gave StickK permission to fine me $100 if I go over budget, and committed to it for the default time span of two months. If I really mess this up, I stand to lose $800 by the end of February. The only way I can get out of it is to contact the website’s administrators directly with a serious excuse like a “medical reason,” according to the site’s FAQ page. That leaves me with three options: 1) stick to my commitment, 2) lose money, or 3) lie.

Money punishments, or the concept of paying a penalty if you fall short of your own goal, are also known as “commitment devices” — an extra incentive to prod us away from our worst habits and toward better ones. As with most extreme measures, I’m not a huge fan, at least in theory. Failure is punitive enough; do we really need an extra kick when we’re down? Aren’t we too ashamed of our own financial weaknesses already? Isn’t it redundant to forfeit money if you don’t succeed in saving enough of it? Plus, it all sounds vaguely paternalistic — like we’re children who won’t get our allowance if we forget to take out the trash.

However, a large body of research shows that these penalty systems work. StickK reports that users who put money on the line are three times more successful in hitting their goals than those who don’t. In one study published in The New England Journal of Medicine in 2015, people who put $150 on the line to quit smoking were much more successful than those who simply got rewarded $800 to do the same thing (52 percent compared to 17 percent). The reason for this is simple: Humans tend to fear losing what they already have much more than they desire to gain something new, even when that gain far outweighs the potential loss. (This pattern of thinking is known in behavioral economics as “loss aversion.”) People also prioritize negative consequences in the immediate future over ones that will happen later on. Money punishments are just a way of making those consequences more present and visceral.

That said, experiments show that rewards do work — just not quite as well. Plus, it’s much harder to find someone to pay you to keep a resolution than someone who will take your money if you don’t. One company, Gympact (later renamed Pact), tried to create a tool where those who failed to meet their exercise goals had to pay those who were successful, but the business model couldn’t account for users who already exercised regularly and joined the program just to cash in on their existing behavior (among other technical issues). Pact closed in 2017.

In addition to StickK, there are several services that allow you to wager money on your willpower. Another big one is Beeminder, which gradually increases your penalty fees (or “stings,” in Beeminder parlance) as you incur them. This approach allows for a learning curve, which most of us need when we’re trying to drill new behavior into our thick skulls (no one should be discouraged by at least one slip-up, according to habit-formation studies). Under Beeminder’s default setting, you won’t be charged for your first lapse, but you’ll have to pony up $5, then $10, then $30, then $90, then $270, and then $810 for subsequent ones. If that’s too much, you can cap your penalty fee if you want — but better yet, set a goal you can actually hit. Beeminder co-founder Daniel Reeves says that most users never exceed the $30 charge, but a couple have paid $810 and others have risked as much as $2,430 (and, unsurprisingly, stuck to their goal as a result).

Reeves, who launched Beeminder in 2011 after its concept helped him stay on top of his dissertation deadlines, notes that there’s a pretty big drop-off in users after they’re charged at first. But if they hold on, their chances of leaving decline steeply. “For those who are hardcore enough to stick around for a year, there’s a churn rate of less than 1 percent per month,” he says. Once users have succeeded in maintaining one goal, they often add others, and incorporate the tool into multiple areas of their lives, such as fitness and career as well as money management.

If you’re curious about other options for commitment devices, Reeves has made a list of Beeminder’s competitors, including StickK. You might also consider starting an accountability group, or a committed circle of people who monitor each other’s progress. While such groups bring the added advantage of social support (or um, peer shaming), they do require more organization (coordinating email chains and/or phone check-ins), and members need to be tough enough to force each other to pay if anyone screws up.

For those who want to up the ante further, you could even set up your penalty fee to go to an “anti-charity,” or a cause that you hate. StickK offers options to have a portion of your fines go to funding pro-life lobbyists, the NRA, or different political parties. I couldn’t bring myself to go that far, but if you really need the extra nudge, it’s available.

Of course, these commitment devices do have one obvious flaw: They are self-imposed. You are responsible for setting your own goal, establishing your penalty, and sending progress reports when they’re due. While the actual penalty process may be automatic (most tools will just pull money straight from the account you’ve set up), you need to choose a punishment that hurts but isn’t so draconian that you’d rather quit (or um, lie) than fail. My choice of a $100 punishment seems pretty steep, in retrospect, but it is working — I’ve been more aware of my spending in the past week than any other time last year. And while lying has occurred to me, it also seems like a pretty roundabout way to thwart myself.

Most people like to say that it never hurts to try. In this case, it can. But if the alternative is to keep spending too much, that’ll hurt much more in the long run.

Should You Try a ‘Money Punishment’ in 2019?