We know that most people don’t save; about 45% have no retirement savings, 63% can’t handle a minor financial emergency and 72% reported feeling stressed about money. The reasons and excuses for not saving vary from; I don’t have any money to invest, life is expensive, have to pay bills, debts and student loans up to don’t know how, where and what if I get scammed. But the #1 real reason is that we don’t see an emergency to do so, we cannot identify with the reason (getting old) of saving for an ‘imaginary’ older self. Research shows that we have similar reaction/feelings towards our older self as we have to strangers. We just don’t know this ‘older self’ – why save for the future, when we can just spend it now?
In addition to not associating with our older self, there’s also a delayed reaction of our saving. We don’t see the results (good or bad) until 20, 30 or more years have passed. This delayed reaction competes daily with instant gratification that we get by buying something now, either being shoes or just an ice cream – we get that feel-good reaction right away, an instant feedback of how wisely (or not) we used our money, but with saving for the future we get nothing. Really, nothing right now, and that makes it hard to justify. Except if we use some good imagination of our future self and wise thinking suggested by our seniors to save early, and do the right thing, etc…
But what if we could bring some of that delayed reaction into an instant gratification, maybe not instant gratification itself (as the reaction is still delayed) but the perception of an instant gratification in the future. Because we’re giving up an instant, feel-good reaction of having that ice cream or pair of shoes we have to entice with a much better offer into the future. It really has to be a lot better for us to give up the now. What if I told you that if you give up one ice cream a month for the next 30 years your future reward (in 30 years) will be 1500* ice creams. Or what if I told you that if you saved $200/month you could have up to $300,000* in 30 years? Will that perception of the future reward make you give up the now? Will it change anything on our actions?
I don’t know the answer, but the point is that as a group of professionals working together to better the saving behavior of people we need to think in terms of incentives, and so far the now incentives (of having that ice cream or that pair of shoes) are winning over the future incentives of ‘currently unknown’. We need to bring the future, as much as it’s unpredictable or unguaranteed into today so that people can make better behavioral choices with their money. On the table below, we’re demonstrating how reducing certain monthly expenses can pay off, and the huge magnitude of the payoff, in the future.
What if everything we purchased or spent had a corresponding ‘future value’ if we saved it instead?
Use our calculators and input your ice-creams, coffees or anything else you want to see as a future value if saved. No ice-creams were wasted for this writing 🙂 .
*Returns (or ice creams) not guaranteed, assuming an 8% average annual return. US Stock market (S&P 500) has averaged 9.53% in the last 89 years (1928-2016), 10.09% in the last 50 years (1967-2016) and 6.88% in the last 10 years (2007-2016). NYU Stern