What Behavioural Science Teaches Us About Saving Money

Google+ Pinterest LinkedIn Tumblr +

what-behavioural-science-teaches-us-about-saving-money

It’s a lesson that your parents and educators have been trying to beat into you since young – save more money. But as much as you want to develop a good savings habit, it seems like you can’t stop your spending impulses. Don’t fret and throw all your efforts (and cash) in the air. Our financial decisions are the exact topics that behavioural psychologists and economists study. So take these lessons from behavioural scientists and understand why you spend, and save the way you do, and how to cultivate a savings habit that sticks:

1. We have a bias towards the present and what it offers

You just told yourself yesterday that you’re going to save $200 this month as a start, but today you find yourself checking out your online cart of tech gadgets. Hey, it’s heavily discounted after all, so you’re actually saving! Or so you think.

Rather than saving future money that you don’t have now, your shopping is testament to the prejudice we have towards the present. We prefer to settle our desires now than to hold out for a longer-term goal. Instant gratification is immediately nicer and tantalising than the idea of a comfortable retirement far, far away. So in spite of our best intentions, we get easily distracted from putting that dollar back in the wallet and plonk our hard-earned money down at the cashier’s instead.

2. Retailers are masters at manipulation

There are also other reasons why you march up to the cashier so easily. Retailers use tactics to make you part with your cash. For example, cash registers and payment counters are often separated from the entrance of the store, ensuring that customers walk through the aisles of pretty produce and shelves of other groceries, increasing the likelihood of temptation and purchase.

You don’t have to avoid going out of the house. Just be more conscious of what you need. If you’re preparing to go to the mall, write down a list of what you need and stick to it.

3. Employ small tricks to make spending more conscious

As much as retailers want to make a sneaky grab for your cash, you can outsmart them and your spending impulses with your own barrel of defensive measures too. According to Martin Lindstrom, marketing consultant and author of Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy, carrying all your potential purchases in your arms will make you more careful with what you’re buying as compared to a massive shopping trolley.

Additionally, the importance of budgeting and recording your receipts cannot be underestimated. Seeing the flow of your money makes spending all the more painful.

4. We don’t factor in special occasions

Remember to set aside a buffer amount for special expenses like birthday gifts and weddings. Make sure you save even more that month, instead of brushing it off as a one-time expenditure.

In a 2012 paper published in Journal of Consumer Research, researchers conducted surveys on how people accounted for purchases they deemed exceptional and their spending forecast for these items as compared to normal items.

The researchers found that seeing this type of expenditure as an isolated case leads to more money being spent. “Failure to acknowledge similarity to other purchases can lead consumers to neglect exceptional expenses when making budget forecasts, and it encourages them to splurge on purchases that they would view more conservatively if they perceived their budget less myopically,” wrote the researchers.

5. Make tweaks to your budget forecast

So you don’t have to be miserly and a terrible friend in order to save money on that wedding dinner angpow. What needs to be recognised is that we underestimate these special occasions, which have accumulative power. These cases are not so special either, especially if you’re in your late 20s or early 30s – the age range where wedding and baby shower invites are gushing into your mailbox.

Saying yes to all of them without putting your finances in order in advance is just going to pave the way to busting your bank account. Instead, outlining a budget that accounts for these exceptional purchases as well as normal ones is key to keeping a tight lid on our overspending. Review your spending activity at the end of the month to learn where you went wrong and what worked.

A photo posted by Ritchie (@rsthepit) on

6. Make savings automatic

If you don’t see it, you’re less likely to miss it and if you’re less likely to do it yourself, make something do it for you. Make a savings habit regular by enrolling in schemes to help you. This can come in the form of insurance where you have to automatically set aside some money for a rainy day and best of all, receive a payout at the end of it.

Join BankBazaar on Facebook.

Share.

Leave A Reply

× AWESOME SAUCE!

Request received - loud & clear!
Returning you to where you were...