Our brains are more hard-wired to earn money than to save it, a new study suggests.
It doesn’t always pay to listen to your brain.
The average American working-age couple only saved $5,000 for retirement in 2016, according to the Federal Reserve’s survey of consumer finances. But new research suggests that our brains could be partly sabotaging us: People unconsciously think more about making money than they think about saving it, due to a cognitive bias towards earning, according to the new study from Cornell University. And the bias is so powerful it can warp our sense of time, researchers suggest — so we don’t realize we’re running out of time to save.
“We all tend to think that we can out-earn our savings, but even without financial constraints, people are still better at earning than saving, even when given equal opportunity,” study co-author Adam Anderson, an associate professor of human development at Cornell University, told Moneyish. “(Our study) shows that the brain is prioritizing earnings in an unconscious way — in a way that we are not aware of.”
In the first half of the experiment, researchers told the participants that they could earn or save money based on different colors that represented saving and earning. Of the 78 college students between the ages of 18 and 21 who participated, 87.5% earned more than they saved. Afterwards, researchers asked participants to record whether “earnings” or “savings” appeared first on a screen. What they found was that people reported seeing earnings appear on the screen first when in fact, savings did.
This distortion of reality shows the bias away from saving towards earning, explained Eve De Rosa, co-author of the study and associate professor of human development at Cornell. “It matches, in some deep way, the idea of ‘save later, earn now,’” she told Moneyish.
The study also found that people who earned more than they saved in the first half of the experiment distorted time the most, and did not prioritize saving later on. And even when saving was presented in two different ways — as protecting one’s earnings and as taking earnings and getting them at a later time — people still chose making money over saving it.
Although the researchers say there are other factors such as age, financial security or personality type that could affect how people prioritize how much they save versus how much they earn, they added there’s a misplaced emphasis on earning for Americans across the board. For the majority of Americans who don’t prioritize savings, this bias shows that it’s not about people not working enough, Anderson said. In fact, despite the high employment rate at 96% in the United States, the savings rate fell at around 3% for individuals across income brackets at the end of 2017, according to the U.S. Bureau of Economic Analysis.
And this isn’t the first study to show that our brains have further biases in relation to how we perceive saving money. A research study from the National Bureau of Economic Research found that about half (55%) of those surveyed had present-biased preference in which they chose the immediate gratification of spending money over thinking ahead and saving it.
This kind of wiring can have negative impacts on people’s quality of life later on: Half of working families are at risk of not being able to maintain their standard of living once they retire, according to a 2014 survey from The National Retirement Risk Index (NRRI).
The solution to remedy this bad habit is not to save more, but to retrain the brain to start seeing saving opportunities, the researchers said. To do this, Anderson and De Rosa suggest starting with daily practices such as saving a dollar a day — not necessarily to build your savings account or to gain interest, but to bring awareness to the act of saving. “It’s really a practice of attention,” Anderson added. “Repeated practice of these small amounts is retraining the brain, so that over time it will come naturally.”
© 2018 Dow Jones & Company, Inc. All Rights Reserved