Feeling Powerful? Take It to the Bank
Do you have a hard time saving as much as you should for retirement or other long-term goals? If so, you’re not alone. On average, Americans save less of their incomes than people in many other developed countries (see chart).
Research in the field of behavioral finance has suggested a number of factors that might influence an individual’s attitude toward saving, such as education, family upbringing, and self-control. These certainly play a part but can be difficult to change, at least in the short term.1
According to a 2014 Stanford University study, a more immediate change in the way an individual feels can drive savings. When a person feels powerful, even if it is just a temporary state, he or she is more likely to save for the future. By contrast, an individual who feels powerless is more likely to spend money in an attempt to compensate, which may explain why many people shop when they are frustrated or unhappy.2
The study also found that feeling powerful and saving can become a self-perpetuating cycle, because powerful people typically want to maintain their power.3
How Can You Save More?
Few people feel powerful all the time. There are typically ebbs and flows — times when they feel powerful and times when they don’t. The next time you’re feeling good about yourself, you might try taking steps to save more.
For example, getting a raise might make you feel powerful, and this could be an ideal time to increase your retirement plan contributions. The same is true for the day you pay off a car loan, student loan, or credit card. Since you’ve already been making those payments, you may be able to put the money to work as savings without a big change in your monthly cash flow.
On the other hand, you might want to monitor your “feel-good” spending. There’s nothing wrong with a treat now and then, but spending on little things can add up over time. There’s also nothing wrong with making a major purchase for something you really need. But if it’s just a “want” or a way to make yourself feel better, you might ask yourself whether you are powerful enough to save instead.
Saving for retirement is a long journey, and there are many competing priorities along the way. By considering the way you feel when you save — and taking advantage of opportunities to save more — you may be able to develop a stronger, more disciplined approach that could help you fund a comfortable retirement.