The Problems with Saving

In 2007 the aver­age Amer­ic­an saved 0.6% of their income. By Feb­ru­ary of this year that had ris­en to more than 4%, but in the 1980s it was 10%.

With this in mind, Tim Har­ford asks why are we such awful savers, and what can we do to improve the situ­ation?

Beha­vi­or­al eco­nom­ists […] have uncovered three reas­ons why people find it so dif­fi­cult to save. The first is tempta­tion: Although we often later regret it, we just can­’t res­ist spend­ing. The second is lack of under­stand­ing: Our brains can­’t quite grasp the prof­it­ab­il­ity of sav­ing. The third is optim­ism: We believe that everything will work out, even if we don’t save.

The solu­tion offered to counter tempta­tion sounds very sim­il­ar to the beha­viour Ram­it encour­ages in his read­ers:

[Research­ers at UCL] found that ima­gin­ing a future pur­chase is almost as good as get­ting it. For example, when we day­dream about buy­ing a new car, our brains respond in much the same way as when we actu­ally make the pur­chase.

We can har­ness this buzz to our bene­fit by dis­card­ing vague ideas of “sav­ing for a rainy day” and focus­ing instead on par­tic­u­lar items we need or want. […] Rein­force this con­nec­tion in your mind by open­ing a dif­fer­ent sav­ings account devoted to each of your goals: one for a new car, one for a vaca­tion, one for a child’s col­lege tuition fees.

1 thought on “The Problems with Saving

  1. Paul

    Being mar­ried to a Japan­ese woman, I can nev­er truly escape the habit of sav­ing and thrift. I think Stew­art Brand from the Long Now Found­a­tion sums up the prob­lem very well, which can be equally applied to peoples’ refus­al to save money:

    “Our inab­il­ity to ima­gine the future is actu­ally an unwill­ing­ness to accept respons­ib­il­ity for it”

    Oh that and of course, suc­cess­ive gov­ern­ments greed­ily inflat­ing away people’s sav­ings to bail out feck­less bor­row­ers. But that’s anoth­er prob­lem.

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