Science Tries To Explain Why It’s So Hard To Save Money

Many of us aren’t hardwired to save, but we can all acquire a savings habit.

18/01/2017 10:20 GMT | Updated 18/01/2017 10:49 GMT
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There’s good news and bad news in recent statistics on saving for retirement. The good news is that retirement saving in the UK has reached the highest level ever recorded. The bad news, according to a study commissioned by Aviva is that 21% of the UK population have no savings at all. (1)

And even those of us who are saving might not be saving enough. Research by Aviva found that the typical retirement income from savings and investments is £12,590pa but the typical person’s current savings and investments would provide just £2,690pa over 20 years. This leaves a gap of 79% or £9,900 a year - leaving many of us relying on the state pension. (2)

Given these stark statistics, why aren’t we saving more? Why do so many of us, when faced with the prospect of an impoverished retirement – or at least one likely to fall far short of our expectations – put our heads in the sand and think about something else?

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Saving is difficult

The obvious answer is that we don’t have enough money to do anything else. The cost of daily life means we have nothing left to save.

While that might be true for some people, it’s not true of everybody. A lot of us have enough money to save a bit more, but choose to spend the money instead. If that sounds like you, one comfort you can take is that, according to science, humans naturally find it hard to save for the future. (3)

Part of the reason seems to be that we all have a ‘present bias’. Understandably, the present seems more important to us than what can seem like a distant future, so we spend for now and forget about saving for later. We also might find it hard to imagine our future selves, meaning we can’t empathise with our future plight.

Research also suggests that, while we might be quite good at everyday budgeting, we tend to overspend when it comes to the special occasions in our lives, which can eat up any savings we do manage to accumulate. (4)

There are other reasons, too. Rising inequality may tempt some of us into unwise spending as a way to keep up with more affluent neighbours. Life is also full of minor irritations, and filling in a form to open a savings account may be one of those we automatically file away for a future date that never actually arrives.

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How can science help us to save more?

So many of us aren’t natural savers, and current circumstances may be making it even more difficult for some of us to develop a saving habit.

But science also suggests some ways to get more of us saving more of the time. Our bias against irritating form-filling - and towards spending for now – can be overridden by work schemes that auto enrol employees in pension schemes. (5) Just such a scheme is currently being rolled out across the country by businesses in response to government legislation. We can choose to opt out of the scheme, but it takes action to do so. In this case doing nothing could be the best policy of all.

After that, science suggests you have to start imagining yourself at a future age. That’s not easy to do, but it does lead to better savings decisions. (6)

For instance, one study found that people make better savings decisions after being shown digitally altered pictures of themselves, showing them as older. Suddenly, when confronted with our future selves, we start to imagine what old age might mean. (7)

Want to try this out for yourself? Try using Aviva’s Time Traveller and see if you feel encouraged to save more. You could also try a few small more practical steps.

Start by consciously trying to focus on what you want life to be like in 20, 30 or 40 years’ time, and then you could start putting money away to fund that future. The key may be to start small. Putting very small amounts away regularly may not be enough in the long run, but it starts building a savings habit. Once you have the habit you’re more likely to increase the amount you save later on.

Finally, you could help overcome a bias against saving by automating the process as much as possible. You could think about setting up your bank account to automatically divert a percentage of what you can afford (after you’ve paid your essential bills) into savings every month. If it happens automatically, the psychological impulse to spend now and forget about saving for later could be less likely to kick in and undermine your future.

Feel inspired to start planning for your future? Pick up hints and tips, use the Shape My Future tool to see how much you might need a week when you retire to live the life you want.

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(1) The Impact of “Invisible Spending” on Your Future, Aviva
(2) Aviva Real Retirement Report, Summer 2015
(3) The National Bureau of Economic Research
(4) Journal of Consumer Research
(5) The Importance of Default Options for Retirement Saving Outcomes: Evidence from the United States
(6) Association for Consumer Research, USA
(7) Increasing Saving Behavior Through Age-Progressed Renderings Of The Future Self, Hal E. Hershfield, Daniel G. Goldstein, William F. Sharpe, Jesse Fox, Leo Yeykelis, PhD, Laura L. Carstensen and Jeremy N. Bailenson