The Act of Saving Money is Unsatisfying, but Why?

6 minute read

Saving money – we know that it’s a necessity if we want to achieve our goals, but if you think about the act of saving, it can feel very unfulfilling. You set money aside that you can’t spend today for an elusive goal in the future. Perhaps you don’t even have a goal in mind, making saving seem all that much more difficult. A typical example of this is setting money aside for an emergency fund, having no idea when or how you will use these funds.   

Although we understand the importance of saving and the opportunities that it can provide, why else is it that we struggle with it so much?

A significant factor is that we aren’t able to see our savings.

Travel back in time with me to when people saved in goats, chickens, and cattle. Using livestock as savings had its beauty – you were able to visually see how much you have, and by that nature, you could also see what others have. Imagine that you’re coming home from a day of work and as you make your way to your door, you pass by your three cows, two chickens, and a pig. You then look over onto your neighbour’s yard and notice that they only have a cow and a piglet. You inherently begin to compare what you have to them and feel better knowing that your livestock is of higher value. What you begin to do is compete with who has more – more savings. 

A study from Behavioural Economist, Dan Ariely, shows just how important the role of seeing our savings can play. The study took place in Kibera, Kenya, a small town where residents would live from hand-to-mouth to satisfy their needs. Should an emergency happen, they would go into debt by taking out loans, having interest rates as high as 10% per week. The objective was to help residents save a slush fund to reduce the need to borrow. They tried three methods to help motivate savings: 

  1. Send weekly reminders
  2. Match their contributions by 10% -20%
  3. Scratching a coin if they saved that week

A coin? People were asked to take a coin that had 24 numbers on it and to place it somewhere inside their hut. If they had saved that week, they would scratch a number on the coin one way; if not, they would scratch it another. Their study concluded that this method was the strongest motivator of the three because it made their savings visible to everyone who passed by the coin, whether it be family or friends.   

As the medium of money has morphed to where it is now digitized, it has become harder and harder for us to see savings making it virtually invisible. As humans, we have the natural tendency to compete with others. Think of our two actions when it comes to money: hidden savings or evident spending. Which one do you think we’re going to focus and compete on?

Furthermore, our financial behaviours also make it difficult to visualize the opportunity costs of our decisions.

A pair of behaviour economists wrote about their experience walking into a car dealership and asking customers what they were no longer able to purchase as a result of buying a vehicle today. Their first responses were that they weren’t sure (which is concerning on its own), but when given more time to think they gave answers that resembled, “I won’t be able to buy a Honda if I purchase a Toyota.” We tend to look at opportunity costs through the lens that follows the same category and time frame. The reality is, we don’t consciously ask ourselves what we’re no longer able to have, do, or be, as a result of a purchase we’re making today. If you buy a car today, you might delay the purchase of a home, a vacation, or retirement. Money represents everything we could buy now and later.

So, how do we adapt to these behaviours in the 21st century? 

The environment that we surround ourselves in matters because we can act differently given similar scenarios. Our conscious mind can only process so many thoughts at once, so trivial decisions are left to our subconscious mind. Experts believe that the subconscious mind makes up for about 95% of our decision-making. Our subconscious mind is reflexive to situations and will try to choose paths of minimal resistance or those that feel safe which could lead to decisions that are self-defeating. If you consciously take the effort to change your environment, you can lead your subconscious mind to make wiser decisions in future scenarios. 

While there are many solutions you can use, I want to leave you with one that you can implement right now. To begin, I want you to think of a goal that you’ve really been wanting to save for, whether that is a trip, car, education fund for your children, or retirement. 

If you use a credit card, take some sort of label that you can stick on your card and write down that goal in a word or two (add a small drawing too if you like!). If it’s a trip, write down the name of the country. If you’re wanting to start a business, write down how you want people to feel from working with you. If it’s an education fund for your children, write down their names. The next time that you pull out your credit card and think about paying for something, I want you to think that whatever purchase you’re going to make is moving you further away from that goal you have written down on your credit card. If you primarily use a virtual wallet on your phone, change the background on your home screen to that goal (yes, you may have to change that cute picture of your pet).

One of two things will happen when you begin to implement this small action; 

  1. You will begin to rethink purchases each time you pull out your card or phone and see your goal. 
  2. Your level of spending remains the same. What does this mean? The goal may not be as important to you as you think it might be and that is entirely acceptable! This is an opportunity for you to re-evaluate your goals and find what is truly important to you. 

I’m not here to tell you that you should buy less, so let me reiterate this; I am an advocate for spending money (that’s what money is meant for)! I’m just not an advocate for wasting money on things that don’t bring you closer to where you want to be. Research from the University of Cambridge shows that 82% of people have made a purchase that they regret and 67% said they made one in the last year. If you’re able to make one less purchase that you regret and direct it towards something you care about, take that as a win!