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The Psychology of Saving

by Phia @ Freedom 101

Saving money is a trending topic these days. In fact, nearly a third of all New Years resolutions made for 2019 related to saving money in some capacity. It’s fantastic to see so many people taking such an avid interest in reducing debt and increasing savings, but unfortunately stats show that a mere 4% of people who made a New Year’s resolution will actually keep it.

So whether it’s losing some weight, getting more exercise, or saving money, we may relish the idea of the outcome, but we seem to plain old suck at the follow-through.

And yet some people never need to make a New Year’s resolution to save money. For some, it’s a habit as engrained as riding a bicycle. For those people, rather than seeming like an impossible feat, the prospect of saving for Financial Freedom can seem like an exciting challenge, raising the bar just a little bit higher.

So what is it that separates the savers from the non-savers? And can those in the non-savers camp find a way to bridge the gap?

Contrary to popular belief, your likelihood of being a strong saver has absolutely nothing to do with your income bracket. There are many people in this world who make large six, even seven figure salaries and still don’t have two nickels to rub together at the end of the day. Conversely there are even more people who make only dollars a day, and yet manage to steadily save in the hopes of improving their futures.

The real answer is that a person’s likelihood to save almost entirely depends on their relationship with money.

Everything from the way we saw our parents handle money, to how we interact with money individually, to whether or not we have have succeeded or failed more frequently in our financial ventures, it all builds the foundation of our money relationship.

It is from the nature of that relationship that we develop our perspective of money, which greatly influences and shapes our overall money habits, including our ability to save.

A condition known as learned helplessness is one area that can present a major stumbling block for people when it comes to savings.

Psychologist, Dr. Martin Seligman, commonly known as the founder of positive psychology, has an insightful series of books in which he detail his studies and experiences of learned helplessness. He defines it as a condition which stems from pessimism or a persistent failure to succeed, leaving a person with the belief that what is occurring in their lives is beyond their control.

For someone experiencing learned helplessness, past inability to save and experiences of financial failure can permanently colour their view of their future likelihood of success, leaving some with the sense that their financial circumstances are far beyond their ability to control. And if someone is trying to jumpstart their savings goals, starting from a place where they don’t really believe they can effect meaningful change to their life circumstances, equates to a recipe for failure.

Fortunately, even though our past experiences with money can’t be changed, our inner dialogue, or how we view those experience can be. Dr. Seligman’s books focus in large part on that fact that while learned helplessness is a condition of perspective, if we can begin to control our inner dialogue about the nature of our failures, we can shift that perspective of helplessness into one of learned optimism.

For some, optimism comes naturally, and can be a major factor that influences their ability to save for their future benefit. For those who don’t innately possess optimism, as the moniker learned optimism suggests, it’s a skill that can be honed. The first step is to know where we sit on the scale of optimism. If you’re curious where you fall on the optimism spectrum, you can take a test developed by Dr. Seligman here.

The second step is to assess our reactions to negative events. To do so, Dr. Seligman used a framework called the ABCDE. The A represents adversity, or how a person reacts to a negative event. The B represents belief, or a persons perception of why the negative event occurred. C is for the consequence, the overall outcome or impact of the belief. D is about disputation, or the confrontation of negative thoughts arising from steps A through C. While E stands for Energizing, or the belief that once we are able to condition ourselves to have more positive thoughts and responses to negative events, we will feel more energized and therefore less likely to engage in negative dialogue.

But in order to condition ourselves to effect positive change, we first need to know our own reactions and perceptions when it comes to adversity. A great way to start is by maintaining a journal, or making brief notes when a negative financial situation presents. This allows for a tracking of reactions, and the identification of areas which require conditioning of our inner dialogue in order to facilitate a more positive response.

A key component to the optimism/pessimism spectrum surfaces when people talk about their perspective on saving in general. If you took two people in the exact same income and life circumstances and gave them a savings goal, the difference in their success rates is likely to correlate directly with that perspective on saving. If one views saving as a self-imposed sentence, in which they are sacrificing their life, giving up everything they love and hold dear, the likelihood of them hitting their savings goals drops dramatically. But if the other views saving as an opportunity to grow, a pathway to improving their life circumstances, increasing their happiness, and gaining control over their time, then the prospect of savings becomes inspiring rather than deflating.

Once we move beyond the intrinsic reaction and beliefs about our overall ability to save money, the second issue which frequently defines the savers from the non-savers is all about priorities.

The first answer (or more appropriately, excuse) most people give when asked about an absence of savings is that they don’t make enough money to save. I mentioned this already, but its worth repeating, income does not dictate an ability to save.

An increase income does not correlate in anyway with an increase in savings. What is relevant is how we prioritize what we do with our money.

For those who are struggling to save, their money priorities usually look something like this: receive paycheque, pay for all lifestyle needs and wants, splurge on a few impulse buys, save whatever is left. When that’s your money cycle, the what is left category is usually at zero, or even more often, it’s debt.

But for those who are savers, their money priorities tend to look a little more like this: receive paycheque, set aside set savings percentage, pay for lifestyle needs, delay wants, save additional money remaining, make a list of wants and prioritize once key savings goals are met.

But in order to implement the second scenario, a person absolutely has to value or connect to their future self. And that’s where a lot of people struggle. Particularly people who have the tendency to procrastinate.

If you are a person who relates to your future self, meaning you truly see yourself and that person as one and the same and recognize that you have shared interests, you understand that the sacrifice of the moment will pay off in dividends and be enjoyed by your future self. And that’s you. So the short-term delay of gratification totally seems worth it, because you believe you are going to experience the benefit.

But for many people, as strange as it may sound, they don’t connect well with their future self. Just ask Tim Urban, author of a well known post on procrastination. For these people, if the problem isn’t right now, it’s just not their problem. That’s next week/month/year guy/gal’s problem. Why should we care about next year guy’s problem? He’ll figure it out. He’s a really smart guy.

From a finance perspective, this can look something like: Hmmm…….I really want a new car, and there’s a promotion where I can get the first six months of payments free, so even though I can’t afford the car payment right now, I’ll just buy the car now, and I’m sure six months from now me will figure out a way to pay for it and save some money for retirement as well.

When you don’t closely relate to your future self, it’s hard to swallow the prospect of delaying gratification. In large part because you have difficulty relating to the feeling or belief that it is YOU who is going to experience that future reward.

It’s also super easy to push the ownership of figuring out ways to save onto your future self. This is because the failure to relate can also manifest as an extreme overconfidence in the capability and self-discipline of your future self. You’re so confident that your future self will be some crazy awesome version of you, that you are quite certain they will figure out all your financial money woes, save money, and retire early. So why would you worry about that now? Future self has that covered, along with losing weight, exercising more and becoming a Mensa member, they’ve made it all happen.

Our failure to regularly consider the impact of our current actions on our future self not only prohibits our ability to save, studies clearly show that it results in greater consumption and higher debt ratios.

So what can we do to get in touch with our future selves? Without visiting a psychic that is.

Start by taking time to imagine what you want your life to be like in 3, 5, or even 10 years. Where do you want to find yourself? What lifestyle do you desire?

Once you have a clear picture or where you want your life to go, even if that picture changes many times over, you can start to regularly ask yourself how your lifestyle choices today are impacting where you will be in the future. And you can set actionable goals NOW that will help you achieve that lifestyle later.

Recognizing that the choices you make today lay the foundation to achieving those future desires can help direct your focus and build motivation to make better money decisions in the moment.

By understanding how our past experiences can shape our relationship and perspective of money, and building awareness of our control over how our future selves see and experience money, we can make significant changes to our ability, and motivations to save money. But it all starts with understanding how YOUR psychology of saving is functioning.

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cougarmoney January 14, 2019 - 6:56 pm

For me, I have always been a saver but I need reminders every once in awhile to push past my comfort zone and save a little more. These reminders can come in the form or books or blog posts such as this one

Phia@Freedom101 January 14, 2019 - 11:59 pm

Thanks cougarmoney! I totally agree! Whenever I read a new finance book or blog, it gives me a major boost to push myself further and get even more creative about ways to save. I think it’s part of why achieving FF is much easier if you are able to regularly immerse yourself in FF content and find like-minded people to talk to and keep you excited about it!

Arts of Thought January 18, 2019 - 6:34 pm

Great article, I learned something new! Thanks!


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