The government announced on Friday that the household savings rate in 2017 was essentially twice what we had anticipated. This is welcome news for American savers. With a savings rate of roughly 6.7 percent (compared to last year’s reading of 3.4 percent), this indicates that people are much better off than we initially believed.
Unfortunately, there is also evidence to suggest that simply won’t work, especially for younger generations and their unheard-of economic challenges. More than 40% of households are unable to come up with $400 in an emergency, according to a widely-cited Federal Reserve study from 2016. There are many possible causes for this, ranging from declining pay to a disastrous healthcare system. It appears that our brains’ structural makeup plays a role in the issue as well.
According to a new study released this week by Cornell University researchers, the cognitive bias against saving is actually quite strong in humans.
Essentially, Adam Anderson and Eve De Rosa, two of the researchers behind the Cornell study, explained to Inverse, our brains tune out information that might be relevant to saving because we’re so much more focused on earning. This effect is so potent that when we are trained to associate different colors with earning or saving, our brains will literally tune out the “saving” colors.
“What we’re seeing is that the brain is unconsciously favoring earning over saving and distorting our perception of reality,” Anderson tells Inverse. Horses always go before carts. You can’t save money without first earning it, so perhaps what we’ve done is the brain has internalized that lesson a little too deeply. “.
Why Are Americans Obsessed With Hustling?
I questioned Anderson and Eve De Rosa about whether the hustle-heavy American values of opportunism and hard work might have an impact on this obsession with earning over saving. Does this cognitive bias encourage us to make questionable decisions, such as buying homes or investment properties we can’t afford or taking a chance on penny stocks in an effort to strike it rich, in addition to making it extremely unlikely for us to save money?
The brain really enjoys earning more money in America, according to Anderson. “If you’re going to brag to your colleagues, think about your purchases and earnings rather than saying, “Hey look at how much money I saved that I didn’t spend. These are things that are not part of our culture to talk about, and [earning] may just be ingrained. No one ever says, “I decided not to go on this holiday!”.
De Rosa claims that one need only look at the viral saving secretary to see how uncommon it is for people to actually save their money.
People with limited resources, like the secretary who saved millions, are frequently the subject of stories, according to De Rosa. “Who would do that? That’s newsworthy! It’s news when someone saves!”.
The fact that these incremental savers are so newsworthy reveals how powerful our cognitive bias is and how uncommon it is to actually develop that instinct for consistently setting aside a small amount of money. And yet, we are all aware that being frugal is a virtue for a reason, and that, even if avocado toast is not to blame for our empty pockets, we should all strive to save more money in order to be more financially independent.
Here are a few techniques that might be worthwhile to try in order to make our brains work together to achieve this crucial goal.
Get to know your future self.
One of the reasons saving money is difficult is because doing so is essentially spending money on your future self, and that future self’s needs and wants are much more ethereal than the siren song of that icy cold brew that will instantly cure your caffeine withdrawal headache.
That was kind of the premise behind a well-known study that discovered people made better financial choices after viewing photographs of themselves that had been digitally aged. We might be able to set ourselves up to be more future-oriented, which facilitates saving, by making the mental picture of our future selves more vivid. Similar words were used by Anderson when discussing his study on mindfulness.
I believe you can approach your spending in a kind of mindful way, he claims. “You might start to pay attention to saving for the future if you attend to the self in a way that includes the present and the future you. “.
Consider applying the “sleep on it” rule to your discretionary purchases if mindfulness is not something that comes naturally to you. People were more likely to select healthier snacks in a 2017 experiment involving vending machine snacks when the machine made them wait a little longer for the unhealthy snacks. Investing some of your emergency funds in a certificate of deposit or other account that requires a little more effort to access than your regular cash may also be beneficial.
RETRAIN YOUR BRAIN.
Anderson and De Rosa, who are currently working on a follow-up study, believe that because our brains are so preoccupied with earning, they are unable to recognize or process the benefits of saving in the same way. They offered a training program that, even they conceded, sounded somewhat “trite.”. “.
If you’re not a meditator, Anderson said, “we thought about the kind of cliched advice of setting aside a dollar a day, not for the dollar itself but for the daily reminder or practice of attending to something.”. Therefore, saving $1 per day won’t necessarily result in a healthy retirement account. However, if you do it frequently enough, you might begin to notice more opportunities for saving from a mindfulness perspective. “.
Actually, the advice offered here is somewhat illogical. Many pieces of financial advice encourage the “set it and forget it approach” because saving money is so tedious and less enjoyable than spending it. “.
It certainly doesn’t hurt to set up systems that ensure you save money whether you remember to or not, but doing so also denies you the chance to consider saving and gain a deeper understanding of its benefits. It’s relatively simple to save a dollar or two every day without having to go to the bank or carry cash thanks to apps like Acorns.
SAVE ALONG A FRIEND.
I’ve found that accountability is very beneficial. I began saving significantly more once I realized that it was my job to write about saving money, and I continued saving even more once I moved in with a roommate who would be aware if I ran out of money and attempted to survive a week on frozen pizza and stolen toilet paper. Other studies have demonstrated that, more often than not, we make decisions that are better for other people and groups than they are for ourselves.
Thanks to advancements in joint bank accounts, social financial technology, or the good ol’ “buddy system,” this is simpler than ever. Banks are now beginning to offer savings accounts that actually pay a respectable interest rate after years of hovering around practically zero, which means your money will start to grow faster.
All of which is to say that, while it’s undoubtedly not a replacement for a working healthcare system that doesn’t require trillions of dollars in medical debt, your brain is also impeding your ability to take better care of your future self. Find someone who will hold you accountable if you can’t.
