October 14, 2016

The Curious Psychology of Saving: Tips for Savers and Spenders

Yael Morowati

Researchers have conducted many experiments over the years with regard to saving and spending.  Although one may presume that our spending habits are reinforced in childhood, they are not entirely based on parental conditioning. Brain chemistry plays an enormous role in our relationship to money and saving.  Even though savers and spenders have two distinctive personality traits, maintaining balance between the extremes is the long-term goal.

While many people usually take pleasure in shopping, savers don’t feel that same way. In fact, they feel real emotional pain when when they need to buy something even if they really need it, because money in the bank is more satisfying to them.  Everyone loves a good deal, but savers feel the rush even more since it’s a relief from the discomfort of needing to spend. The act of saving brings them such intense pleasure that they sacrifice plenty of instant gratification along the way.  If a saver buys a coat that typically costs $450 and he gets it for only $75, he’ll enjoy the coat more. But if he bought the same coat without knowing the cost, he wouldn’t appreciate it as much. Knowing the total amount saved gives savers more pleasure.

The Psychology
Every time savers look at their growing account balances, they feel satisfaction. In a study published in the Journal of Consumer Research, researchers observed activity in the insula, the area of the brain which is stimulated when we experience something unpleasant.  When it comes to money, insula stimulation prevents spending. Researchers concluded that people who have more insula activity in their brains are more likely to be savers, and those with less tend to be spenders.

The Cure
Since savers are literally addicted to saving, they may miss out on some of life’s simple joys. Pain and pleasure are the two primary motivators that drive savers.  Savers may not experience enough joy. Here are a few suggestions to help savers enjoy the ride a little more:

  1. Use a credit card.
    When it’s time for a larger purchase, use a credit card to distance yourself from the financial aspect. This will help take your mind off of the expense and relax.
  2. Automate savings.
    Use an app like Clink to automate your savings plan so you can forget about every little penny you need to save.  Doing so will help you remain in the present and smell the flowers more often.
  3. Vocalize your goals.
    Tell friends and family and set a date to close the deal. This will force you to commit to simple pleasures along the way.
  4. Reward yourself.
    Treat your purchases as a reward for something that you’ve done well, so they’ll take on more value in your mind.
  5. Think of your future.
    Do you really want to have regrets over the things you didn’t do.
  6. Create a vision.
    Think of all the places you would love to visit. Give yourself leeway to get away.

Unlike savers, spenders take true pleasure in shopping.  In fact, they live for shopping sprees and whimsical in-the moment impulsive spending.  Spenders are unable to delay their gratification and are ruled by instant, short-lived moments of happiness. With cash in front of them, they can’t resist the urge to have a new fashionable jacket right away even if they know it will be on sale two weeks later. That’s why they don’t have much savings in the bank, but it doesn’t really bother them. They’re content making purchases and enjoying them in the moment.

The Cure
Since spenders are literally addicted to spending, they may not have enough saved up when it comes to the essential purchases like a house or education.  While we could get into the detailed psychology of spenders, we believe it behooves the reader to jot down a few suggestions to help cut back on spending:

  1. Don’t use credit cards.
    People tend to spend less when they have to physically turn over their cash instead of swiping a card. When we use credit cards, we don’t feel the negative psychological effects of using our money and instead focus on the pleasure of buying new things.
  2. Pay as you go.
    Pay for everything as it comes, and you’ll be able to watch your money leave your pocketbook. This will prevent you from forgetting about the cost you’re tallying up.
  3. Withdraw cash.
    Relying on cash forces you to see the dwindling balance in your account. When we spend physical dollar bills, we see every last penny leave our wallets.
  4. Make shopping lists.
    By creating a list, you avoid aimless wandering and avoid putting yourself in impulsive situations. When you calculate the money you’re going to spend, you’re more likely to reconsider your decisions.
  5. Distinguish between needs and wants.
    Before each and every purchase, stop and ask yourself whether or not you truly need the item.
  6. Track spending.
    Tracking your spending takes the emotional enjoyment away from shopping. You’re more likely to spend more wisely.
  7. Create short term and long term goals.
    Tangible goals will help sustain you over time since they will keep you motivated. Consider goals that you can visualize which will push you to work a little harder toward putting your pennies in the bank.
  8. Reward yourself.
    When you meet your savings goals, allow yourself to spend a responsible percentage of what you saved.  These small rewards will keep you interested in your plan and will make the pleasure of saving last longer. Look toward your next goal and the mini-celebration you’ll have upon hitting that goal.
  9. Vocalize your savings goals.
    Your close friends and family will hold you accountable.
  10. Start with a penny.
    Save one penny a day. Saving, like any behavior, becomes addicting.
  11. Think of your future.
    Look at the future, no matter how uncomfortable it is. Be realistic about how much money you will need to retire or how you’ll pay for your children’s education.
  12. Automate savings.
    To ensure that this habit of saving becomes a habit, automate your transactions which will relieve yourself of the burden of making sure that they happen each month.

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