Destined to Spend – Why Saving Money Is So Hard

Written by imoney

Savings is the outcome of a lifestyle preached by those who wish to live within their means. It’s supposed to be the self-preserving, rational instinct that drives us to a fulfilling and meaningful way of life.

But guess what? We Singaporeans aren’t part of that world. In a place where steady progress comes at the cost of scary expenses, one thing is clear – the system is gamed to make you a spender whether you like it or not.

So who do we blame for forcing us to play this cruel game? Misplaced capitalist ideals? Greedy geo-political power brokers? Aliens?

The answer, contrary to sensationalist expectations, may lie in the cold, ever-mysterious complexity of the human mind.

Are We Biologically Programmed for Financial Self-Destruction?

Recent neuroscientific studies conducted by top behavioural economy theorists have come to the conclusion that the human mind may simply not be developed to do justice to do the prospect of savings. David Laibson, an influential American behavioural economist received a considerable amount of press coverage and positive reviews from his peers on a study that proposed that humans are naturally predisposed to spending over saving.

According to the reports, the primary areas of decision-making involved the primitive part of the brains of early age humans. They had a heavy investment in driving us to secure the three essential needs for human survival – food, shelter, and sex.

“You’re happy to go on a diet, you’re happy to exercise, you’re happy to save — but you’re not happy to do it today,” Mr. Laibson said. “We tend to weight the future half as much as we weight the present.”

Although the frontal cortex area, responsible for higher mental functions (the mature brain), has undergone significant development over the several thousand years of our existence on the planet, the same cannot be said for the reptilian brain lurking beneath us that constantly seeks immediate gratification.

It’s why most of us consciously acknowledge that saving for the future is an important strategy, but our primitive brain still overrides rational decisions in favor of some purchase that serves only our short-term desires well.

That’s why it’s common to see many Singaporeans putting in money for mortgage insurance, staying on track to meet the CPF Minimum Sum, etc. often end up spending on some extravagant yet unnecessary item.

Although the primitive brain’s machinery is rather outstanding at helping us deal with survival situations that require spontaneous decision-making, there is a neural pathway that joins the two discordant brain regions through the brain’s emotional centres and allows us to assess the pros and cons of our financial decisions.

Unfortunately, this means that more often than not, the two areas remain in extensive conflict with each other while processing the suitable decision, which makes the task of saving a very confusing and unnatural exercise.

When it comes to making investment or saving decisions with a tenure of several months or years at stake, the brain just can’t focus as well as it can in situations like spending excessively on your date’s cocktails in an expensive nightclub, or stretching your credit line filing for a car loan just because you can’t stop thinking about the latest BMW model.

It is the natural urge of the individual to think from a present-centric perspective most of the time and stray from our true financial priorities. But that doesn’t mean our self-control instincts cannot neutralise this terrifying natural trigger.

An easy way to ensure you maintain a steady stream of savings is to make a one-time commitment of income to your savings account that can easily be automated and deducted from your earnings so that you do not have to fixate over the issue on a regular basis.

Utilising debit cards over credit cards is also an easy desire-taming solution to keep your hands tied back for your own good.

The Bright Light

Paul Zak, a neuroeconomist at Claremont Graduate University and the author of The Moral Molecule: The Source of Love and Prosperity, stated that humans can take their savings hunt to the next level by hacking their biological programming to overcome this problem.

Using a neurochemical called Oxytocin as the crux of his behavioural research, he theorised that just like the chemical’s role in trust and social behaviours, the inclusion of a social element in your savings strategy can significantly help one curb the desire for instant gratification by prioritising a social reward over a materialistic one.

Some of the most productive savings strategies emerge as the innovations devised by efficient social support systems like investment clubs, online forums, and personal relationships. The stronger the social engagement, the greater the oxytocin content in the brain and subsequent improvement in savings plans.

Although Laibson’s studies show that we are indeed hard-wired to spend instead of save, we can certainly optimise our financial strategies to ensure that your savings and expenditure do not cross paths with each other. 

For more financial tips and tricks to optimise your financial lifestyle, visit imoney.sg and learn all the best moves to make with your money.