Your Brain Is Stopping You from Saving

We know we need to save, but many don’t put enough away for retirement. Why? Blame our brains.


Everyone knows that saving for retirement takes a lot of work, even if you make a healthy income. While the latest census data shows that 65 percent of Canadians are saving something for their golden years, the national household savings rate – the difference between a household’s income and expenses – has fallen to 4.6 percent, down from 20 percent in 1989.

Those who don’t save, or don’t save enough, likely beat themselves up about it come RRSP contribution time – it’s March 1 this year – but they can take comfort in knowing that researchers have found that psychology, and the way our minds are wired, can hinder our savings habits. Fortunately, there are ways to fight back against our brains.

Researchers have found that psychology, and the way our minds are wired, can hinder our savings habits.

Spending feels good

One of the biggest challenges to saving is spending – and how our brains react to buying fancy toys. As anyone who has ever bought a new gadget knows, spending makes us feel good, but that’s largely due to the dopamine hit we get when we find a bargain or see something we really want.

“There are a lot of people who rely on the dopamine rush that comes with finding a bargain or something special as a way to add a little bit of oomph to their life,” said Dr. Kit Yarrow, a professor at San Francisco’s Golden Gate University in an article in Medscape. “I think that’s probably the most problematic aspect of shopping: that people become almost addicted to the bargain hunt.”

Avni Shah, an assistant professor of marketing at the University of Toronto Scarborough, agrees and adds that the more we spend the more we want. “Whether out of boredom or something else, spendthrifts want more things,” says Shah. “They have less attachment to money, less incentive to save.”

We can’t see the future

Another barrier is that we have trouble seeing ourselves in retirement. According to Hal Hershfield, a professor at UCLA School of Management, people see their future selves as strangers, which causes a disconnect when we think about helping ourselves down the road. We’d rather do something now, like spend money, than help a “stranger” by saving money that would only get used in two or three decades from now.

In a now popular study, Hershfield took photos of research subjects and then aged them, adding jowls, baggy eyes and grey hair. Half the subjects saw these age-enhanced images, while the others didn’t. He then asked people to allocate $1,000 to four options – buy something for someone, invest for retirement, plan an event or save in a chequing account. The ones who had seen their older selves put twice as much money into the retirement fund as the ones who didn’t.

Saving is abstract

Even if we know we need to save, putting money away for a far-off goal like retirement is often too abstract for our minds to grasp and abstract goals are the hardest to work towards.

In a Psychology Today article, Utpal Dholakia, a professor of management at Houston’s Rice University writes that “decades of psychological research on setting and pursuing goals shows that abstract goals are the most difficult goals to pursue. People have difficulty developing a plan of action for abstract goals, and are more likely to procrastinate and avoid pursuing them.”

Without having an actual number to aim for, we’ll continue to put off saving year after year.

Push back against psychology

Fortunately, the way we think about saving can be changed. Tamara Sims, a research scientist at the Stanford Center on Longevity, says thinking about saving in concrete terms, rather than abstract is important. That involves setting an actual retirement goal that you can work towards.

When it comes to spending, Ryan Howell, an assistant professor of psychology at San Francisco State University, says to wait 24 hours before making any impulse purchases. Usually, the desire to buy goes away, he says.

It can also help to pay with cash instead of credit cards, adds Shah. “You won’t notice a [purchase] on a card, but you will with cash,” she says.

Finally, think about the future more than you do. If you can imagine what life will be like in 20 years then you’ll likely see your savings increase, says Hershfield. You could go so far as to have an age-enhanced photo of yourself on the wall.

“[A photo] could work,” said Hershfield in the Harvard Business Review. “As long as you keep noticing the picture and recognizing that that future person is dependent on the current you and is ultimately the same you – just occupying a slightly different body.”

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