It seems a bit paradoxical that I collaborate to talk about home economics, professional career or personal finances and that, one of the first things that I say, is that Savings tips, as good as they are, do not usually work.
Many know up to the latest strategy and yet continue to have problems in that regard. Why?
Mainly because psychology and personal economics are closely linkedso it is necessary to go beyond rational advice if we want results.
Some of these psychological and “irrational” aspects of economic decisions earned Richard Thaler a Nobel (although his famous book Nudge is in the spotlight, because exposed experiments and data are not replicated), so it is important to delve into this aspectalthough with better references.
The topic is enough for a book and there are many reasons, but I want to focus on the top 2 reasons savings tips don’t work for many people, even when they are good.
Knowing this can help you save more
Knowing what we are going to see will also allow us to recognize it when it happens and realize when is it affecting us.
I’m not going to get too into concepts like reactance (in a psychological sense), but it is the innate tendency to resist any attempt to restrict our freedom, manipulate us or do what we are told. When we realize that someone is trying that, or we detect mechanisms in that sense, that reactance arises naturally and we resist.
Or as the old marketing proverb goes: “We love to buy, but we don’t like to be sold to.”
If we do not know these two factors, the reactance before them does not arise and what we are going to see performs its work unconsciously and unopposedsaving less in practice, even though we know the theory.
And the first reason why savings tips don’t work is that they simply saving is not for us.
1. People are not made to save
With savings advice, what I call “The Salad Problem” occurs. We all know that you have to choose it, but obesity rates are growing because we are biologically made to crave the hamburger.
Knowing the theory of saving does not guarantee anything, because we have evolved not to think about the future. Among the many cognitive biases that we have, there is the so-called “hyperbolic discount”, an old acquaintance of economists.
This bias causes us to have a innate tendency to value smaller immediate rewards much more than larger future rewardssomething that has been proven for quite some time, in many studies they do replicate.
This leads to terrible decisions, like smoking, not choosing the salad, and sure enough, spend now instead of saving for later. It is something deeply programmed and we have evolved like this.
It’s constantly sabotages savingsa concept too modern for evolution, which advances very slowly.
We are not very different from the times when we lived in caves without agriculture. The world was cruel, the predators too and, thinking ahead, silly. We stuffed ourselves to eat when we got something and before it went bad, because who knows if we could hunt tomorrow or how long the winter would last.
Our rational prefrontal cortex can memorize advice and know what to save for tomorrow (after all, not many predators show up when you open the subway door anymore), but the rest of our biology pushes powerfully in the opposite direction.
As Brad Klontz rightly concludes from his work on research in this field:
“We are naturally programmed to do the wrong thing when it comes to moneyit is something inherent in our neurobiology… We are not made to save for the future, that is a new concept in our evolution».
How can we mitigate this effect?
complicated, but knowing this is already the first step.
When we have to make saving and spending choices, we now know that there is an inclination that manipulates us in that last direction. This mere fact already makes us consider it, stop for a second and, hopefully, delay the reward.
In other cases, there are little psychological tricks, but the truth is that its effectiveness is very different depending on the personality each.
As a curiosity, one of my main rules is to remind myself that the José Andrés of now is harming the José Andrés of the future with another useless expense. Therefore, I repeat a golden rule to myself during my decisions: try not to annoy the José Andrés of tomorrow too much.
2. The context is not made for you to save
Since we economists and the like know this previous inclination, what do we usually do? Exploit it to buy more and we also get paid more.
So we live in a massive ad bombardment context which takes advantage of the first factor.
Today, this has been refined to the maximum. I have worked a lot in the technological field and I have been able to see, for example, campaigns of microtargeting that shoot with the precision of a laser Using mechanisms of split testsor constant tests of different ads, to see what works best and what you spend.
At first, they don’t seem too effective, like in any campaign. But after a few thousand impressions, and without you having to do anything, the algorithm would figure out within hours who was clicking what, fine-tuning the shot and improving the effectiveness to the point of being scary.
And that is the tip of the iceberg.
In summary, they shoot us with cannons so that we spend and we have wooden swords to defend ourselves, our humble advice and saving strategies.
We live in an environment that pushes all the time in the opposite direction to that saving. In addition, in many cases, psychological strategies of price or deferred payment are added. They take advantage of the fact that, in general, we are not good at financial math, especially in a context of heightened excitement about the marketing of that shiny new iPhone.
How can we mitigate this effect?
Complicated, I will not deny it. We are fighting alone against a bunch of behavioral engineers, economists and marketers, who are paid too much by powerful companies like nations. to find out how we can click on yet another product or have more minutes hooked.
Turning off the mobile and Internet is turning off social life, but it would not be bad do it oftenif only for the data that guarantee that we recover mental health.
The relationship between a impaired mental health and poor spending and saving behavior is more than documentedbut that is another Pandora’s Box that there is no time to open.
Apart from that, the main thing is achieved: reduce advertising impacts that shoot at the waterline of our savings.
If we are not going to throw the cell phone out the window, at least I would like to remember one of the techniques that I mentioned when I was talking about psychological savings tips:
If we want to buy something, we don’t hold back (holding back works poorly in general), but let’s wait 72 hours without seeing ads, or anything about the product. If, after those 3 days, the desire or need is still just as powerful, we buy.
But, in many cases, either it will have been diluted or we won’t even remember it.
In short, we can talk about making a budget, cutting credit and spending with cards, going back to paying in cash, improving financial culture or living within our means… That works, but only if we apply it. The main problem is that often that practical application of advice is an uphill battlethanks to too many factors that work against us saving.
Source: El Blog Salmón by www.elblogsalmon.com.
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