A Money-saving Mental Trick
Americans like to spend. Nearly half of us are saving no more than 5 percent of our incomes, while 18 percent are saving nothing at all, according to a new report. The average American family savings account balance is $3,950, 40 percent of working Americans are not saving at all for retirement and 25 percent have no savings at all.
Unless we change our spending habits and learn how to save, we soon will be facing a full-blown retirement crisis, as 24 percent of Americans have already postponed retirement and only 18 percent are confi- dent they can retire. Most people know of the dangers of not saving, so education isn’t necessarily the issue. While there is no quick fix, there is a new psychological tip toward reaching your financial goals that doesn’t require willpower.
When we think of retirement, it seems far away. The further away the goal, the less urgent it seems. As a result, it becomes difficult to stay on track, especially when short-term wants come up. Researchers Neil A.Lewis Jr. of University of Michigan and Daphna Oyserman from University of Southern California published in Psychological Science an easy way to keep yourself motivated to work toward your goals, whatever they may be.
When we think of reaching our goals in years, it seems far off and that we have plenty of time to make up for it. But if we look at our deadlines in smaller units of time, it can help us to mentally stay on track. Instead of thinking of just one year, think of it as 365 days, or one month as 30 days.
The researchers “primed participants with either one of two time metrics for three randomly assigned scenarios. Participants filled in the blank for when they should start saving, cued by units of either days or years to match the scenario given. For example, they were asked to say when they would start saving for college that started in either 18 years or in 6,570 days, for retirement starting in 30 years or in 10,950 days, or for retirement starting in 40 years or in 14,600 days.”
When the participants thought in terms of days, they planned to start saving money four times sooner than those who used years. Why is this?
Psychologically, when we use the smaller unit, the time seems closer. The study found that “events seemed an average
of 29.7 days sooner when considered in days instead of months, and an average of 8.7 months sooner when considered in months instead of years.”
Even though the actual time to meet our goals doesn’t change, we feel more connected to our future selves when using smaller units of time. This makes it easier for us to forgo current rewards (spending) for future rewards (saving). So investing for the future doesn’t seem as big a sacrifice!
You can go to artofsmartmoney.com to sign up for more simple tips to help you save and invest more! Going forward now, you don’t want to see retirement as 20 years away, but as 7,300 days away.
