Using “Commitment Contracts” to Meet Your Financial Goals

Do you have a financial goal you’ve been having trouble meeting? Say, for example, you wish you were contributing more to your retirement savings plan, or paying down your debt faster?

A group of "behavioral economics" experts from Yale have launched a website to help people achieve their personal goals – namely, by putting money on them. 

The website, called StickK.com, works by asking you to form a "Commitment Contract" that binds you into achieving your goal. The idea of a commitment contract is based on the principle that people are more likely to follow through with something if there’s money riding on it. 

How does StickK.com work?

StickK.com works by asking individuals to name a personal goal, such as saving money, and then provides a detailed process – including financial incentives – to help them reach their goal.

For example, imagine you want to pay off your credit card balance. You could form a commitment contract on StickK.com by specifying your goal (e.g., "eliminate a $952 Visa card balance") and setting the date by which you want to accomplish it. You can sweeten the pot by taking the optional step of setting a financial "stake." This step adds an extra layer of incentive to achieving your goal – because it will cost you money if you don’t!

Let’s say you are willing to commit a $30 stake for every month you fail to reach your goal (in addition to your required monthly repayment on your credit card balance). If you report that you did not pay at least the required monthly amount on your credit card balance each month, StickK.com will charge $50 to your card.

At the end of your contract, StickK.com will remit the total amount they charged you to your designated recipient. This recipient could be a charity, a person, or even what StickK.com calls an "anti-charity" (which is a charity, business, or organization you despise). The use of "anti-charities" is intended to provide an extra nudge for you to fulfill on your goals.

Finally, you can also choose a "referee" to report in and evaluate your progress towards your goal. You can also use other StickK.com users as your "cheering section."

Will it Help Me Reach My Financial Goal?

The one-year-old site has about 30,000 members so far, and the founders say that if you follow all of the elements of their system, you will have a success rate of between 75 and 80%.

There is, of course, a potential pitfall of using StickK.com to achieve financial objectives. If you fail to meet your goal and forfeit a monthly stake, you’ll just be that much further away from paying down your credit card, putting extra money into savings, or spending less.  

The vast majority use StickK.com to achieve weight loss goals, which don’t present the same paradox as money-saving or debt elimination goals.

In the best case, a system like StickK.com can provide the extra nudge to support you in overcoming your personal challenges. But only you can decide whether the extra incentive of a financial stake in meeting your goals is worth the potential risk. You might be better off applying your available cash directly to your financial targets instead – if you have the discipline, that is.

Have you used a site like StickK.com before? What was the experience like for you?