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Early in my career, I was critical of those who failed to save, tut-tutting over their short-sightedness and lack of discipline. Today, I’m more willing to cut the world’s spendthrifts a little slack.
Why? Over the past four decades, I’ve often been asked for financial advice not just by readers, but also by those I’ve known well. Some of the advice was followed, some wasn’t. But in every case, there was no change in the person’s basic spending and savings habits. I even dated a woman who had $100,000 in credit-card debt. All my efforts to change her behavior came to naught.
We are, of course, firmly in the land of anecdotal evidence—and yet I suspect most readers would agree that few people they know have fundamentally changed over the years.
To those of us who save, the failure to set aside money for the future can be baffling. If we didn’t save regularly, how much worse would our life be today? Think about the added everyday financial stress, along with the hit to our long-term dreams. Given all the benefits, why wouldn’t folks embrace the savings habit?
And yet many—and perhaps most—people never do. Indeed, I’d argue that we dutiful savers are the exception and that, for most people, controlling spending is a lifelong battle that they never win. The traditional employer pension plan isn’t going to make a comeback. But it’s easy to grasp why it worked better for most employees than 401(k) plans, where participation is voluntary.
I believe it all comes down to evolutionary psychology. Our hunter-gather ancestors had no need to save. In fact, the best survival strategy was to consume as much as they could whenever they could, in case there was no food available tomorrow. In any case, food that was saved for the future would likely spoil and, if it didn’t, it might invite predators.
Obviously, some folks—meaning you and me—have managed to overcome the hardwired instinct to consume today and set aside nothing for tomorrow, and I imagine there will be more diligent savers in the generations ahead. After all, unlike 10,000 years ago, planning for the distant future is now a helpful strategy if we want to survive and thrive.
“Well,” you might retort, “these spendthrifts just need to find some backbone and start socking away money.”
Unfortunately, that’s easier said than done—because it means fighting those hardwired instincts. And don’t kid yourself: You may not be inclined to spend without any thought for the future. But what about other instincts that don’t serve us well today, like those that tell us to eat the extra donut and skip the workout?
Eating too much and saving energy by avoiding unnecessary activity were both good survival strategies for our nomadic ancestors, but they sure aren’t good for us today. So, did you eat the extra donut? Did you skip the workout? Maybe we should have a little more sympathy for our free-spending neighbors.
Many of us are familiar with the marshmallow test. Walter Mischel and others demonstrated that children who were able to delay gratification had more impressive achievements later in life than those who could not wait to eat their marshmallows.
These studies have often been analogized to saving habits – individuals who are able to save money regularly from an early age usually demonstrate impressive financial achievements later in life. Some people have theorized that this shows that some people have innate abilities to delay gratification – they are born savers.
I was interested to read of a follow-up study conducted at the University of Rochester, in which the children taking the marshmallow test were divided into two groups. One group of children (the reliable group) were given a set of inferior art supplies and asked to complete an art project. They were told that researchers would be back soon with better supplies, and indeed this is what happened. The researchers gave them better supplies, and they completed the project. So far so good.
The other group of children (the unreliable group) were subjected to the same situation, with the difference that the researchers returned in two and half minutes and said that they had made a mistake – there were no better art supplies. The researchers then repeated this pattern with stickers (I can get you some better stickers – sorry, we don’t actually have better stickers).
Then both groups were subjected to the marshmallow test. (It is amusing to note that one little boy who was very tempted to eat his marshmallow immediately instead sat on it, to remove the temptation.)
There was a huge difference between the reliable group and the unreliable group. Children who had experienced unreliable adults ate their marshmallows as soon as they were left alone with them. Children who had experienced reliable adults were able to wait.
The researchers’ conclusion: Children’s wait times reflect rational decision making about the probability of reward.
This might partially explain the difference between savers and non-savers: one’s experience of the reliability of the world. Unfortunately, it doesn’t explain why two people from the same family differ radically in their ability to save.
The researchers’ final caveat: “Don’t do the marshmallow test on your kitchen table and conclude something about your child. It especially would not work with a parent, because your child has all sorts of strong expectations about what a person who loves them very much is likely to do.”
I think you answered your own question: it’s human nature. We might learn more from answering the opposite question: Why do people save, and how do they become savers? Alot of folks in the responses below seem to be answering that question, which is not surprising given the makeup of HD readers.
This really isn’t original to me. Someone once pointed out to me that the question “Why does poverty exist” is the wrong question, because poverty is our natural state and has been for most of human existence. The real question is: How do people and societies become prosperous?
One of the hardest things i have done is looking in the mirror and trying to understand who i am and why i behave the way i do. It’s honestly hard work and i’m not close to done. Admitting that i didn’t really know anything about money was quite sobering, embarrassing and at some point finally enlightening.
Being willing to be “humble” and then learn and change. I wish this was something that could be taught but in my opinion it can’t it must be learned.
First, I changed my mind on politics. Then years later, I changed my mind on religion. I don’t know anybody who has done both of those. I do know people who have done one or the other. Next, my open mind led me to changing my mind on stock market investing. I learned about index funds and more and that’s one of the reasons I found Humble Dollar.
I leaned to be open minded and non-partisan and avoid biting off my nose, to spite my face so speak.
I don’t immediately have sympathy for the spenders. They’re getting what they want and they’re happy. I do have sympathy for the people they’re supposed to care for. I’ll think about this though because maybe I’m wrong. Sympathy might be the better viewpoint.
This is one of the great conundrums of our age. I feel sometimes that I am on the frontline of the battle as I encourage recently promoted bank employees to raise their 401(k) contribution rate and consider Roth participation . We auto-enroll new employees at a 3% rate which rises to 8% in 1% annual increments. We provide a 50% match on the first 6% the employee saves. Rarely does a new employee stop the auto-enroll and annual increases.
Our bank also provides a 7.5% profit sharing match on each employee’s salary. Unfortunately I have employees who have worked more than 20 years never having participated in the 401(k).
Up until I was about 25 years old (1986) I spent every penny I made. At about that time my income began to exceed my lifestyle (decent car, decent 1 bedroom apt I furnished myself and, most importantly, golf clubs) so I was able to begin paying myself first via dollar cost averaging into equity mutual funds, etc., and the race was on. I hit my enough point and didn’t care to spend my increasing disposable income on a whole lot more. I did buy a brand new 1987 Saab 900S when I had a perfectly good 1983 Toyota Celica ST, an indefeasible decision in many ways, but that Saab was one heck of a car. It lasted me until 2001. So, becoming a net saver wasn’t all that hard for me because my circumstances were steadily improving.
The 50s seem like a decade of wild spending, fueled by the desire to make the most of life. I think it’s the realization that we’re all mortal that makes us want to splurge on a business-class flight to that dream vacation spot. Hopefully, all those years of saving will come in handy!
In American schools (pre-university) literacy almost uniformly means reading. You rarely hear how important it is to be mathematically literate (likely because most strong math people don’t end up in teaching at that level).
We shouldn’t be surprised if we know that the majority (on the low end) don’t really understand the nature of saving, compounding, and patience, that they won’t participate in the process.
It’s really that simple, something that requires giving up immediate gratification requires more understanding to become attractive.
Pay ourselves, first.
Delayed gratification is one of my favorite topics to think about. After reading The Marshmallow Test, I began to better understand myself and others.
I would have crushed the test. I can delay gratification almost indefinitely–unless it comes in the form of a puppy.
Depending on the research, between 40 and 70% of people struggle to delay gratification. I think this plays out not only financially, but also in terms of other areas of life such as eating, exercising, etc.
The other personality trait that seems quite variable to me is the ability of one to plan ahead. I’ve always been a planner. A long term planner. I’m usually thinking about my life in terms of months, years and decades ahead of where I currently am.
The ability to plan ahead served me well in my job as a departmental manager. I always had to be thinking–and planning–for future events.
The longer I worked in my job, the more I realized I was something of a unicorn when it came to thinking ahead. I discovered a lot of people struggle to think about, or plan, more than a day or two into the future.
Many years ago I attended a meeting at my workplace designed to educate staffers about the retirement benefits available to them. I was shocked that most of the people there (many of whom were within five years of retiring), had no clue how much money they had (or didn’t have) saved. Most were completely unaware of how to obtain estimates of the Social Security benefits. Almost none of them knew our employer offered health insurance plans to retirees.
I think automating our savings, from an early age, is one of the best things we can do for ourselves. It’s an area where technology is a big help.
Rick, your comment reminded me of the “automated savings” my husband initiated when we got married in 1973. We were both paid every Friday in cash by Met Life where we worked at the time. Walking home to our apartment in Stuyvesant Town (NYC), we would stop at the bank and buy a savings bond. When those matured 30 years later, he purchased more. Those are the ones I will soon convert to e-bonds for my kids.
Great story Linda. I wrote about a paper to e-bond conversion 4 years ago. It wasn’t too difficult and I’m glad I did it.
Not sure if I qualify as one of the “few people they know have fundamentally changed over the years.” But. Until my mid 30s, I didn’t live within my means and buried myself in a sea of red ink (although I did have a lot of fun too). Is that a character defect? Maybe. Eventually though, I grew weary of the vicious debt cycle and understood it was self-defeating. The phrase “When you are in a hole stop digging” finally resonated. Over a period of a few years, tackling debts with the highest interest rate first, I paid off everything with the exception of a reasonably-sized mortgage-and each year I got a raise, more of it went toward debt. I then used the same process to build savings and contribute to retirement accounts, adding more each year. Now I’m in very good shape for retirement and I don’t find it difficult to spend like some folks talk about but I don’t spend foolishly either. A key approach is finding a retirement income that provides permission to spend with a floor of guaranteed, low-risk income.
Recent inflation makes it even harder to overcome a natural drive to consume whatever we’ve collected before something goes wrong. My supposedly diversified portfolio hasn’t yet risen back to its 2021 value in inflation adjusted dollars. This inflationary damage resembles what might have happened to an ancestor’s ancient stash of stored grain that risked ruin by weather or plunder by animals. Say you save $20 this year and then next year it’s only worth $19 in spending power and then only $18 the year after? That is not a feedback loop that will get more people saving. The promise of tax-sheltered 401k and the like? Listen to what people are saying about their RMDs and IRMAA. Save money and expect to be nickeled and dimed of its value. And that’s even before the inevitable human mistakes in choice of investments for saving and fees that we pay, etc. (Yet, I still advocate saving!)
There’s a school of thought that thinks 2% inflation is actually good. Think about what your $20 is worth after one year of that and if you’re 20 years old, what that $20 would be worth when you retire 40 years later.
Jonathan, there are lots of really great thoughts here, and also in the comments. I’ve seen people change. Early in our marriage, my ex-wife was a willing participant in saving and looking toward the future. But she changed over time and pretty soon she even wanted to tap into the 401(k) and IRA savings we had. When all was settled, I wondered what she did with her half once she got them. I’ve happily seen one of my sons go from being a spender to a saver.
Individuals can change over time, but not always for the good.
Jonathan, good article. I mostly agree with your thoughts, but do think some folk’s behaviors can be coached/changed with proper implementation. Much like going to secondary school to learn more on various subjects.
Early in my work career, I was engaged in hundreds if not thousands of consumer loans. Many of these were for consolidation of credit card debt at substantially higher interest rates. I always prefaced my conversation of the loan request to include that I would prefer they not do the consolidation loan if they felt within 2-4 years their credit balances would substantially grow to the same amount again. This caused many customers to reflect on their spending habits, and many came to their loan closing with cut up credit cards. I would say that over a 15 year period more than 50% of my clients avoided returning to their previous levels of debt. A smaller % were also able to begin a practice of saving regularly (usually in a 401k plan), that may not have been done previously. Just saying that some folks can change…
This precise thought occurred to me over the last few years or so. I previously believed that if the right information (such as can be found on this site) were presented to people, they would/could change their behavior. I no longer believe that.
I’m now closer to a financial Calvinist wherein I believe in predetermination of those who were already going to be good savers.
But as you alluded, this is not just for financial habits. Think about all of those “gym rats” out there: people who simply cannot and will not forgo daily (or twice daily) workouts. They similarly cannot believe that there are people who don’t prodigiously workout given “all of the great benefits” thereof. I think such people are hardwired for that activity as we are ours.
I find behavioral finance fascinating. Some people are natural born savers, but not me. I was a terrible saver in my youth. To be a successful investor, one must first be, or become, a successful saver. We can learn to do what we must, even when it conflicts with our hard wired instincts. Most of us are creatures of habit, good and bad. Forming useful habits, such as “pay yourself first” helped me overcome the urge to spend all my income leaving nothing to save or invest. That seems so simple, almost trivial, but it worked. The nice thing about this habit is that if you practice it for a while, and gradually see the results accumulate, you feel a reward of sorts, call it a “dopamine hit”, which makes it easier for you to stick with it. Eventually I became a successful saver, and was finally ready to profit from reading Bogle, Jonathan and others.
The best savers are those that are wired to believe in delayed, vs immediate gratification.
No doubt you are correct, David. I suspect their intelligent behavior comes naturally to some. However, others can still learn to emulate their behavior, and adopting a simple yet wise habit is one way to do so.
I had to learn how to save also, along with how much to save. Good thoughts, Jack.
If my pension had had a COLA I wouldn’t have worried about running out of money in retirement, which would have removed the incentive to save. On the other hand, I really hate shopping and don’t care about accumulating “stuff”, other than books, so I might have wound up saving by default. I do enjoy good food and wine, but not to excess and not including sweets. I doubt I would have done well out on the savanna.
Regarding pensions and COLA’s. I retired from employment w/ the State of N.J. in 2010. In 2011, then Governor Christie suspended the COLA provision to reduce revenue flow from N.J.’s underfunded pension system. For many years, politicians of both parties neglected to make the required contributions to properly fund the pension system. Fast forward to 2025. Still no COLA. Allegedly, when the system is 80% funded COLA’s will be reinstated. Politicians failed to do their job and state retirees suffer the consequences-boo!!
You mention your pension and lack of COLA often. Except for government plans, pensions with COLAs are very are. Did you take a job assuming there was a COLA? Even any pension is a plus.
I don’t have a COLA either, but since 1911 the plan never had a COLA, but never missed a payment either.
I initiated seven ad hoc COLAs over the years varying the percentage so oldest retirees got the most, but after the 401k was established in 1982 it was assume the Company match was a form of advanced COLA because there was still a pension.
I grew up and joined the megacorp in the UK. In the UK pensions have COLAs. The very small part of my pension paid by the UK company still has a COLA.
Two things helped me to be a saver. 1) I began working at 16 and my mother encouraged me to save half of my net. Much of the rest went into bus fare to high school, etc. 2) When I began my first truly viable business, I hired an accountant to assist me. We had monthly discussions about running my business and he made me justify every capital purchase. He also extolled me to avoid debt. He said that to do so meant “mortgaging my future”. I took his advice to heart.
As Johathan noted it may be impossible to change some people’s money habits. I do have first hand knowledge of this. One problem is that there are those for whom there is never enough. I was once married to such an individual.
I suppose you’re right about the innate differences between spenders and savers, whatever the underlying reasons. If we found ourselves in a primitive society, however, I suspect we might still be different. I can imagine us striving to convince folks not to expend all our energy chasing after the outside chance of an elusive big killing. Instead, we should subsist on simpler fare, like roots and nuts, as we plant and tend the seeds of tomorrow’s ample harvest, enjoyed along with the tender morsels we’ve shepherded and saved for the celebratory feast.
And perhaps our efforts today are not aimed at those doomed to their spendthrift ways. Rather, we are searching for like souls lost in the midst of a sea of carefree spenders, buffeted by the many hollow temptations offered daily. We keep casting a line, hoping to rescue them before they succumb completely until they reach solid ground of sound financial habits.
I think spending fills some psychological need. Fills some personal void, to prove something. Some people see success as having something and others are satisfied by having the ability to have something.
A woman who worked for me could not stop buying, she racked up credit cards and then borrowed from her 401k to pay them off and then repeated the process over and over.
‘’She went out of her way to keep it hidden from her husband. Once she bought new furniture identical to her sister in laws and when it was in her house told her husband she had gotten it from his sister.
I tried to counsel her many times, she understood, she promised and then continued as usual. Not even risking her marriage could stop her.
Jonathan, Thanks for a well articulated post. I believe the basis of our money saving habits are formed early in life. Our childhood experiences can shape our beliefs about money.
My Mother was widowed when we were young children. I never wanted to overburden her, so I never asked her for anything. Having that mindset helped to make me a frugal person, of necessity—only spending money on what I valued. I avoided extravagance, except when it came to giving gifts to those I loved; which was the one area in which I would spend freely.
I feel for those who have insufficient income and who do not have enough earnings to save, especially families with children.
I can quite empathize with your last sentence. I come from a large family and remember having a conversation with my father about savings. He had mentioned to me that before one critiques another about their savings, walk in their shoes. It wasn’t that they wouldn’t want to have savings, it was first providing for their families the essentials. I know many people say that savings are essential, yet when you’re trying to keep a roof over your family’s head and shoes on their feet and something in their stomach, savings are the last thing on the list sometimes.
I agree our habits get set young and it takes real impetus to change them. My parents were in decent enough jobs if not corporate careers so I’m not sure I can point to money being tight but I think I recognised from around age 10 there was value in having your own pile of savings ( ironically I suspect some of that early saving perhaps $100 or so is now lost to a dormant account in a multiply merged bank).
I’ve always somewhat envied my brother for having a more relaxed attitude to spending. His spending (not excessive) is cushioned by a higher salary and a very good DB pension so while I might get to retire a year or so younger than him he’ll be well off in retirement.
Marjorie I spent many years working in very low income neighborhoods. I came to know some very good people who were dealt some pretty bad cards. I can empathize with those folks.
Dan, I get a lump in my throat when I think of what some have to endure and sacrifice for the sake of their children’s welfare. I’m sure with your cheery personality you helped brighten many a day for those people in need.
Interesting perspective Jonathan. Saving comes naturally to me, and I’m at the gym at least three times each week, but that extra donut, slice of pizza, or helping of lasagna is hard to resist. In order to shed 15 pounds I’m now eating until I’m no longer hungry, as opposed to until I can’t fit any more food in. I am also eating more fruit and vegetables. But for me this takes more thought and effort than the act of saving money or exercising.
I saw a report years ago about The Japanese practice of eating until 80% full is known as “hara hachi bu” (はら八分目). It is a Confucian philosophy that encourages moderation in eating. This is because there is a natural delay in the stomach telling the brain it’s full. Try this and wait an hour and if still hungry have seconds. But believe you me it’s still hard to do in practice.
BTW I did not write the Japanese characters. That was the good ol’ copy and paste mechanism.
That seems logical David. It’s about an hour or so after over indulging that I realize I ate too much.
One might argue that it’s a good job the careless and spendthrifts as well as those whose life choices/events give them no choice but to spend outnumber the supersavers.
Without them the consumerist bedrock that holds up growth in equity markets might become more fragile giving the savers much more volatile and weaker returns.
Yes, I’ve considered that thought. But help me think about it differently. Our resources of time, thought and material are available to be used for any purpose. If we collectively turned our efforts toward ideas and things of more lasting value, would there not be a market for that value?
Sure I think so, but it’s a long time to turn that ship around in the face of short term dopamine hits from spending and opportunistic business pursuit of the fast buck and short term results.
And ultimately as savers/investors we have finite time windows. Not too many of us would be happy sitting on a stock/fund that went nowhere for a number of years while other ephemeral stars soared.