March 11, 2024

Do our brains work against us when it comes to saving?

Writing for CNBC, Jasmine Sukanin reports that our barriers to saving for the future may be all in our head.

What now?

“There are the many psychological pitfalls our minds are subject to when it comes to saving, investing and taking the actions that will benefit us long-term,” she notes.

If, she writes, retirement is something that is far away for you – maybe 30 or 40 years from now – “many would rather treat themselves to things they can enjoy right now instead of socking away money for a future that’s decades away.”

This, she explains, is called hyberbolic discounting, and refers to the fact that most of us prefer decisions leading to immediate rewards rather than decisions leading to future rewards.

Another factor that can cause our brains to reject a new plan, like starting to save, is that “people often have a tendency to stick with their current situation, since it is easier to keep things as they are than it is to take steps to make a change,” she writes.

This, she writes, is called the status quo bias.

“People tend to say, `yeah, whatever’ to situations where sticking with their default or current circumstance doesn’t immediately hurt them or cause a large loss. So they continue paying $10 for a gym membership they don’t use, let the dirty clothes pile up in the corner of their room and let the package sit until it’s past the return date,” she explains.

Summing up this one – it’s easier to do nothing than it is to start something new, even if that new thing is saving for retirement.

A related condition identified in Sukanin’s article is called the planning fallacy.

“We tend to underestimate how long it will take to complete a future task, often despite knowing that previous similar tasks have taken longer to complete than planned,” she explains.

In a retirement saving scenario, this results in people who “put off saving for retirement until their 30s and 40s, thinking that they should be able to amass as much as they’ll need for their golden years in just two decades.”

So, we think we can play catch up on retirement saving. But, Sukanin continues, that “catch up” thinking is joined by another problem, which is not knowing how much we need to save for retirement.

“According to the Journal of Accountancy, 54 per cent of (American) people underestimate how much money they will need to retire. Underestimating how much money you need for retirement and how long it will take you to save that money can be a recipe for an underfunded nest egg,” she warns.

So, we tend to live in the now with money decisions, don’t like making changes (like saving) and/or put our saving off until our middle years, making it hard to save enough. Phew!

It’s important to start saving for retirement, at any age. If you have a retirement program at work, be sure you are contributing as much as you can.

If you don’t, take a good look at the Saskatchewan Pension Plan. Once you join SPP, you decide how much to contribute, and SPP does the rest, providing low-cost, pooled investing with professional management and a sparkling track record.

And when you actually do retire as an SPP member, you can choose to receive a lifetime monthly annuity payment, or take advantage of SPP’s Variable Benefit, where you decide how much to take in income, and when!

Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

, ,

Leave a Reply

Your email address will not be published. Required fields are marked *