Retraining your savings brain
Where there’s a will there’s a way, especially when it comes to saving. The latest scientific findings reveal that although fewer than 25 per cent of us have a genetic predisposition to squirrel money away for the future, we can all learn to save if we set our mind to it.
According to Dr Hersh Shefrin of Santa Clara University in California, a further 25 per cent of people will always struggle to save thanks to a part of their brain that does not respond to a hormonal stimulus which encourages strong willpower.i
The good news for those with impulsive personalities is that there are many behaviour-changing techniques and online-based tools that can be used to increase your ability to save.
As knowledge expands about how the brain can be retrained to create new pathways for processing information, so does the knowledge that anyone can learn how to flex their savings muscle.
Nature vs nurture
It’s been found that a gene named COMTii determines whether we are born spenders or savers.iii It turns out that those of us with a certain COMT variant are more likely to have the pleasure hormone dopamine present in the part of our brain that controls learning.
If something is pleasurable we are more likely to give it a go. So if learning is pleasurable it is easier to acquire financial knowledge then go on to save rather than become an extravagant spendthrift.
Science has also shown that your response to the different ways of increasing your natural saving habits will depend on how your brain is wired. Washington University’s Stephan Siegel researched the spending habits of thousands of sets of twins and discovered that genetic differences accounted for about a third of the reason why individuals were more likely to save than not.iv
Your money personality
The key to financial success begins with an awareness of our unconscious behaviour.
A study involving MRI scans has also shown that different parts of the brain light up when an individual is presented with a series of prices for a product. In some study participants, a high price will activate the part of the brain that suggests purchasing is risky and, therefore, the temptation to spend is subconsciously diminished.
In other words, learning how to control the impulse to buy non-essentials could be as easy as redefining your attitude to what constitutes risky spending.v
To better understand your approach to money, you could take one of the many online quizzes designed to identify your spending personality.vi Once you are aware of this you can begin to reassess your perception of financial risk when you go shopping.
Parents can also reinforce responsible attitudes towards money by helping their children understand financial consequences and enabling them to develop lifelong saving habits.
A simple technique that works well if you are saving for investments, children’s education or a holiday is to place a picture of the goal you have in mind on an envelope. A photo of your child on an envelope is more likely to encourage parents to put money in it.vii
Similarly, a picture of a holiday destination placed somewhere you look regularly can make it more compelling to save for that dream vacation.
Another trick is to remove temptation. If you do your banking and budgeting electronically you could use one of many online apps designed to divert a portion of your regular income to a savings account automatically.
There are even banking products that can calculate how much needs to be put away each week to reach your savings goal and transfer that amount into your nominated account.
If you would like to be better at managing money, your financial planner can show you how to exercise your savings brain and help you reach your personal goals.
i. Hersh Shefrin, PhD, Santa Clara University. https://www.chase.com/online/chase_blueprint/document/JPMC_Chase_BornToSpend_FINAL.pdf
ii. COMT is short for catechol-O-methyltransferase
vi. https://d1c25a6gwz7q5e.cloudfront.net/papers/1342.pdf . Page 35.
You may also like
- Volatility: 10 key messages for investorsFinancial markets can be subject to periods of event-related volatility during which investor confi...
- Phone security: get switched onKeep your money, identity and personal information safeHave you ever left your phone behind? It’s an odd feel...
- As a small business owner, do I need a Plan B for retirement? (Video)Alexis Wheatley CFP®As Principal of Wheatley Wealth Management, Alexis ...
- Federal Budget – what could it hold?Speculating about the likely look and feel of the 2016 Federal budget is fast becoming a national pastim...
- It must be true, I saw it on the news"Good evening and welcome to the evening news. Our top story - the All Ordinaries rose by one poi...
- How to work out your retirement numberThe amount of money needed for retirement is not one size fits all. How you’d like to spend your retir...
- 5 questions to ask your financial plannerFinding the right financial planner for your needs, goals and life stage is essential to help you a...
- The real cost of retirementWhen you’re looking at saving and planning for retirement, it’s important to know how much you can expect to be s...
- A Few Summer Credit Card Blunders And How To Avoid ThemSummer is usually the time for people to sit back and relax. All through the year, ha...
- Money mistakes you make in your 20sWhich of these rookie errors sound all too familiar when it comes to you and your squad?In your 20s, you ...