Tuesday, March 20th, 2018
If you have ever branded some people in your life as ‘spenders’ or ‘savers’, your assessment is all about psychology. For some people, the thrill of splurging on a new outfit or fine dining experience is much more pleasurable than depositing diligently into a savings account. On the flip-side, the world is also inhabited by people who measure happiness by how much their savings account increases each month/week/day.
Behaviour can be inherent but it can be learned and the good news is that behaviour can be changed.
To become better at saving, it’s important to first understand the psychology behind spending.
When it comes to spending vs saving, Australians have a unique approach to their financial resolutions. According to ASIC’s Money Smart research (How Australians Save Money), 85% of Australians who make a savings resolution have a specific goal in mind.
The top 3 savings goals listed in those findings are:
For 27% of those good intentions, it is a lack of willpower by the saver that sees those plans come crashing to a halt.
The statistics are a clear reminder that finding the healthy balance between spending and saving can be challenging.
When we take a closer look at the psychology behind the decision to spend, rather than save, many people seem to believe that they are making a good decision at the time – or rationalising it by their belief that, although they may be making a bad decision, it’s for a good cause.
A common refrain that is given as a reason many people in Australia aren’t great savers, comes down to the lack of formal financial education provided by parents, as well as the teachers we connect with throughout our childhood and adolescence.
In an ideal future, more weight will be given to improving financial literacy at a primary school and high school level, to give future generations the best possible opportunity to understand the benefits of saving over spending. In the meantime, though, gaining enough knowledge to help us unlearn bad habits and change unhelpful spending behaviour is critical to help more people achieve the financial goals they dream about.
Psychologically, the factor of time plays a significant part in attitudes to spending versus saving.
Many people feel that they have plenty of time available to save and so justify poor spending habits in their younger years. But the reality is that time suddenly seems to fly past very quickly when we choose other priorities as being more important than saving for a secure financial future.
Unless you have a significant inheritance coming your way in the future, the reality for most people is that savings and investments will make up the large part of your retirement funds and the longer you wait to add to those savings and investments, the less you will have to live on comfortably in your senior years. Even the seemingly small difference of waiting a year or two can mean losing out on tens of thousands of dollars in savings growth.
Change your mindset to a sooner, rather than later approach and start committing to savings immediately – even if the amount is only small it will start to build with consistent additions to your savings account. (And you really don’t need that brand new pair of shoes every few weeks, really!)
To make long-term changes to your future financial security, starting now is the best possible advice to take. Teaching an old dog new tricks can be done – but the truth is that learning something while you are young has much better results. And if you have children, it is your responsibility for their future that you give them a great financial education too. Even as little as a few dollars a week, saved consistently, can help them amass a great amount of money they will appreciate in adulthood.
In the same way you can learn a new sport, a musical instrument or a new language, you can also learn new skills around budgeting and better savings habits. With a greater understanding of the benefits of savings and how even small amounts saved consistently can deliver long-term financial security, the motivation to kiss old spending habits goodbye can become stronger.
Understanding the psychology behind why you feel the desire to spend is a good start to changing behaviours.
Studies have shown that shopping to make you feel good – known as ‘retail therapy’ -does help reduce feelings of sadness or emptiness in the short-term but if the flow-on effect is limited available funds to manage other aspects of life, that happiness is typically very short-lived.
If you feel like your spending habits are spinning out of control, talking to a financial counsellor can give you budgeting strategies to take control of your money. And with a healthier attitude to savings, the door of opportunity to more sustainable investments that help your long-term financial well-being can be within reach.
For advice and insights about finance broking issues, talk to our team of loan specialists at Loans Actually today.