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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.