Hard-wired not to save? How you can overcome this

Are we hardwired not to save?

Financial psychologist Brad Kluntz claims that when it comes to saving, our brains are hardwired all wrong¹. He argues that we just aren’t wired to save.

He explains our brains evolved in a world of scarcity and constant threat. For our ancestors, there was little point in saving or hoarding. In evolutionary terms, it was much better to consume as much as they could, as quickly as they could. Saving is a relatively new concept, which requires us to consciously override our natural impulses to consume.

Our prehistoric survival also required us to share our resources. This propensity to share increased the chances of survival, as it would inspire others to share in times of need. To save for the long term, people need to find a way to temper the sharing instinct. Amassing wealth also requires an individual to justify that it is okay for them to have money, while others do not.

Brains wired to save or spend?

Neuro economics is dedicated to exploring the connection between biology and financial choices. While there’s not a huge body of research just yet, some are claiming that studies seem to support the assertion that we are predisposed² to be either savers or spenders.

During the 1960s and 1970s, Stanford University psychologist Walter Mischel, PhD, tested children’s self-control with the now-famous “marshmallow test.” He gave a pre-schooler a marshmallow. Before leaving the room, he told the child if they waited to eat the marshmallow, they would get another one. But if they ate it immediately, they wouldn’t get another. In follow-up studies decades later, the children who showed self-control by waiting to eat two marshmallows, were more likely to have lifelong habits of delaying gratification, resulting in stronger finances, marriages, and careers.

How to retrain your brain

If, in fact, these researchers are correct and our approach to money is hard-wired, that doesn’t necessarily mean you are doomed to a lifetime of overspending or deprivation. Just as you may have a genetic propensity toward disease, you can adopt better habits to reduce your risk of serious problems.

While it can be challenging to retrain your brain, it’s not impossible. Here are a few tips to help you get started³.

1. Track your spending. Try writing down everything you spend for a week or two. This should help you identify where you are overspending and how you can save. Create a budget designed to reduce wasteful spending, pay off debt if you have it, and start saving.
2. Decide what really matters to you. Figure out what matters most to you. Gaining control of your finances doesn’t mean you have to eliminate all discretionary spending. But some things you are spending on will be more important to you than others.
3. Connect with savers. Studies support the theory that our friends influence our eating and drinking habits. It just makes sense they could have a similar influence over spending habits. Consider finding some friends or associates who are savers, and start spending time with them. Pay attention to their habits: Do they stay in and invite friends over instead of going out for dinner? Do they split a meal with their partner rather than paying for two?
4. Automate savings. “Pay yourself first” is a time-tested mantra. The key is to put money into savings before you can spend it. The best way to do this is to automate your savings.

Whether our brain is hardwired to spend or not, it is important to make a conscious effort to save money in order to improve our financial wellbeing.

References

---

1. https://www.cnbc.com/2019/12/09/when-it-comes-to-money-our-brains-are-wired-to-do-it-all-wrong.html↩︎
2. https://www.jstor.org/stable/10.1086/679284?seq=1↩︎
3. https://www.bbvausa.com/moneyfit/savings-and-budgeting/the-brain-science-behind-saving-money.html↩︎

General advice disclaimer

The information contained in this document is provided for education purposes only. It has been prepared without taking into account your particular financial needs, circumstances or objectives. You should consider the appropriateness of the information as it relates to you. You may wish to consult an adviser before you make any decisions relating to your financial affairs.