Savings are a sum of money accumulated to ensure a person’s needs and desires for the benefit of his present and future. The motives for saving are individual and vary from person to person. At the same time, there are several common reasons for saving that are relevant to all of us. Keeping money aside as a safety net, investing in interests, or making a large long-term purchase.
So why is it hard for us to save? And what can be done to deal with these difficulties?
Mor Leibel and Nofar Zamir of Ben-Gurion University dealt with this issue as part of a master’s degree course in business administration. In their work, they analyzed the concept of savings, the social and economic phenomena that affect it, the psychological barriers to saving and the ways to overcome them. You can see some of the barriers and solutions here.
Read the full study: 2016_Mor Leibel_Nofar Zamir_Seminar_Encouragement for Savings
- Procrastination
Procrastination is a common phenomenon characterized by procrastination or avoidance of performing a certain action of importance. Procrastination may worsen our current situation, and in the context of savings, it may even harm financial planning for the future.
So what do we do?
To combat procrastination, an approach of implementing intentions must be taken. That is, to build a specific plan with which we will reach a certain goal that we have set. This approach can be even more effective when the program follows a pattern of “if… So…”. For example, if the goal is to celebrate an event in a restaurant, the plan would be – if I want to order a meal at a restaurant, then I have to work an extra two hours every day this week.
- Limited rationality and financial ignorance
Our ability to make optimal decisions is limited by a number of factors. Sometimes, we do not have all the information available in order to make a decision, or we are under a time limit that does not allow delay in order to make a calculated decision. Accordingly, the financial field can also seem complicated for those who are not familiar with it or do not have enough time to invest in decision making. In order to manage our finances, we need at least a basic understanding to define the rate of income, expenses and amount of savings we need for future consumption.
So what do we do?
It should be remembered that the banks actually act like a market, where it is possible to bargain and present alternatives in order to increase yields and reduce fees and interest rates.
– It is important to make sure that we are aware of the amount and conditions in the savings channels at our disposal.
Use of defined plans for savings through the workplace – According to the law, every salaried employee in Israel must be insured with pension insurance through employee and employer contributions. The employee may choose the type of pension insurance from three options: pension fund, provident fund or executive insurance. In addition, he must choose in which pension body his funds will be deposited.
- Marketing and difficulty resisting temptations
Western consumer culture is among the most influential factors in the consumer market in Israel. This is consumer behavior in which the emphasis is on materialism and buying products in abundance without taking into account the level of real need for them. On the way to multiple consumption, massive advertising and marketing activities are exerted on the consumer. These actions include combining economic and psychological elements so that the consumer, consciously and unconsciously, creates an artificial need to purchase.
So what do we do?
– Strengthening willpower by committing in advance – This method creates a strong commitment that we do not want to violate. The savings we create for a specific purpose to which we have committed, such as saving for children or for school, will be perceived as off-limits and it will be more difficult to be tempted to use it for another purpose. Naming a savings plan, for example, is an action that creates commitment. When you set a specific goal for which you save, psychologically, it will be more difficult to use that money for a different purpose.
In the context of the locus of self-control, an internal locus of control should be encouraged over an external one. Instead of placing the blame on external factors and acting passively, we should encourage taking responsibility for our financial situation and conduct, so that we manage the money and not the other way around.
- Fear of loss
This characteristic refers to the tendency to weigh losses more heavily than to weigh profits. Households get used to a certain amount of disposable income, and any reduction in it, even if for savings purposes, will be perceived as a loss. Therefore, some households are reluctant to open a savings plan or increase an existing plan.
So what do we do?
In such a case, we want to emphasize profit over loss, meaning that the “surplus” money directed to savings is not lost, but will be used if necessary in the future. In the event that family income is not fixed, or the economic system around us is unstable, savings can be used as a “safety net” strategy.
- Social comparison
Most people tend to compare and value themselves in relation to others, so social comparison has an impact on the motivation to save among families.
So what do we do?
– Involving family and relatives – Studies prove that social support contributes to savings. Sharing the issue with friends and relatives helps exchange information and mobilize social support.
– Viewing data from the Central Bureau of Statistics – presenting data on consumption, income and savings, for perspective using verified data that reflect reality.
- Difficulty making decisions
Significant decisions regarding economic conduct sometimes become difficult and discouraging.
So what do we do?
In order for savings to be more accessible to families, a simple savings plan should be built, with a clear goal, which will make it easier to make decisions later on.
- Impulsive shopping
Impulsive buying is a form of behavior characterized by buying without forethought, based mainly on indiscretionary impulses to consequences, which can lead to uninformed buying.
So what do we do?
– Avoidance – factors that trigger desire for a specific thing. For example, restricting entry to restaurants.
– Setting rules for rejection – such as acting only after a certain date or consulting with your spouse. It is assumed that if we resist desire at that critical moment, it will be diminished afterwards. Distractions can be used as a strategy for procrastination, avoiding the irritation and frustration of waiting.
– Use of substitutes – setting a small but immediate reward that will reduce the desire for the original desire.
We will emphasize the feelings of guilt and regret that sometimes arise after the fact, so that people will avoid acting in such a way as to cause them to feel these feelings that they have experienced in the past.
– Calculating the economic cost, the intention to translate the action into financial terms and avoid giving up and excusing ourselves that “we deserve it”.
