The best saving tricks are backed by science

Three months of expenses. That was the recommendation The Bank of Spain did In June 2022: Save “three months of expenses”; This is enough to “face the unexpected day in and day out.” Just take a look Spanish savings rates To realize that, finally, It looks like science fiction.

However, with accelerating inflation and unprecedented social instability, it seems that now is more time than ever to stop and think about how we can cut expenses and clean up our personal, family or business finances. What does (psychological) science say about all this?

The difficult task of balancing personal finances

As I explained Our colleague Alejandro Nieto, “three months’ expenses” is a reasonable number, but it’s not very specific. In these cases, the “basic advice” is that of Harold Pollack: which – that Our savings target should be between 10% for the lowest wages and 20% for the long

This, let’s face it, is not easy. Between 2013 and 2019 he saved the Spaniards 6.9% of income available (average). This means that it took the average savings “three years and five months” to save in those three months. It’s true that in 2020, through a pandemic, those savings will rose to 16%but in 2021 the proportions fell again (to about 11%) and Inflation threatens to leave that percentage of savings at historic lows When it ends in 2022.

And it’s no surprise either. There is a huge array of biases that distort the view we have about our personal finances and “prevent” us from making decisions that (in economic terms) will make more sense than the ones we actually make.

Among all those prejudices, present siding (The tendency to value “what is” more in the near future than in the distant future) f Loss aversion (the tendency to avoid monetary losses in order to achieve equivalent monetary gains) are, probably, the ones that have the most direct influence on the financial decisions we make. Luckily, Science has a lot to say When it comes to helping us use these biases to our advantage and “give us a little nudge.”

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Lucas Van Oort

Let’s be direct: we are machines. Machines of flesh, bones, skin, and nerves, but machines nonetheless. This is whatpush theorypush theory. It doesn’t contain any great news, it is a framework that allows behavioral and cognitive psychology to be applied in today’s day: whether it be designing public policies or, as in this case, achieving small personal goals.

Moreover, if we sum up the main idea of ​​the “push theory,” it will suffice to reiterate one of the basic consensuses in behavioral science: that when we talk about changing behaviors, Positive reinforcement and indirect suggestion They are more effective than prevention and punishment. If we are laws of chance and behavior, why not make use of them?

The best known example of the possibilities of this theory has much to do with the UK pension system. Despite the fact that surveys and opinion studies have stated that workers have been made aware of the need (and desire) to save for retirement, the truth is that savings rates have been minimal. And no matter what the government has done, rates haven’t gone up yet.

In this context, the British government’s Behavioral Insight Team (a special unit dedicated to this matter led by psychologist David Halpern) proposed an idea so simple that it seemed far-fetched. Halpern and his team proposed changing the default options in the model used to manage retirements. There were many skeptics however The data spoke for itselfIn three years, the proportion of employees increased from 55% to 83% in large companies.

The moral of this story (and many others) is that simple, clean, silly stupid changes…can lead to great results. And if the meaning is that, then the question is simpler: in a situation like the current one Can we use these principles to maximize our savings? Can we change our habits and behaviors to be more solid and resilient (financially)?

Strategies to make better decisions and help us save

Today, in fact, we will focus on the possible small changes Help us make better decisions. The ways in which psychology can help us are much broader, but they may not be as quick to implement.

Have a (realistic) goal for the future and use it to our advantage

Strange that sometimes Simple things like “picture yourself in the future” (i.e. imagining ourselves in the long run) help us to make better decisions. In fact, the more pronounced this projection is, the more it affects behavior: studies Those who have used these techniques to make decisions like buying automatic savings accounts, choosing long-term rewards, or taking exams seem pretty solid.

All in all, one of the most effective strategies for combating biases is “Engage – engage“Despite the clichés, people are not very good at lying (or lying to ourselves) and we tend to run away from situations that force us to deny or act against the things we believe in. In the case of savings, every purchase decision is, at bottom, an occasion be consistent With our goals and objectives. Therefore, making a commitment, being clear about it and examining each relevant decision (in the most transparent way) in light of said commitment is a great way to use our ‘conscience’ to our advantage.

To do this, however, must be our goals concrete and realistic (Although it is obvious It is not easy to access). It is useless to commit ourselves to providing 20% ​​of our wages if the basic expenditures exceed 80% of it at the moment of truth. If our savings goals are excessive (that is, they do not really depend on our marginal decisions), they will quickly cease to be useful to us: as soon as we prove that they are impossible to achieve.

Instead, if we want to create a realistic goal that we’re fully committed to, we’ll need to do it family budgetsCarefully analyze expenses and incomes and find out how far we can go. With this in mind, personal commitments and expectations for the future become tools to improve our decision-making.

Make automatic saving and spending a pain

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Another great strategy is to save ourselves from making the decision. One of the main themes of retail is to reduce what Lowenstein calls it “Pain to Pay.” (The inconvenience that makes us spend money and undermines customer satisfaction). The big race of the past few years has been to make the buying process so quick and clean that we barely realize it’s happening. “One-click purchase” or subscriptions they go from it.

If you look closely, the previous section is mainly focused on maximizing the “buying pain” so that the decisions we make are as conservative as they can be financially. The other way is simply It prevents us from having to make decisions The ones we want to take: those related to savings. The best example is Savings automation. If instead of sending money from one account to another manually, we automate it: we avoid having to evaluate every month whether it is the “right time” to make that transfer. Furthermore, we reverse the burden: the decision we have to make is whether this is a “good time” to withdraw money from a savings account.

Such an example there are dozens. From creating shopping lists that “protect” us from supermarket promotions or discounts (which tend to use “loss aversion” so we make expenses we don’t really need) or using prepaid cards for things like entertainment (which protects us from impulsive spending). often pAn example is our colleague Javier LacourtDeserves spend some time a Think about how these kinds of tools can help us today.

Image | Alexander Gray