Monday, September 9, 2013

How can we get you to save for retirement?

Perhaps the biggest source of human misery is the tradeoff between short-term and long-term goals.  We are wired to do what seems best to us right now, even if those actions conflict with what is best for us in the long-term.  That is why we eat that piece of cake instead of dieting.  It is also why we spend our money now rather than saving for retirement.

In order to protect our future self from our current self, we have created retirement accounts where we put some amount of our money now so that we’ll have enough to live on when we get older.  In many companies, employees are required to put a certain amount of money away for the future, and then they have the option to save even more.

Often, people do not put away enough money for their retirement.  There are lots of reasons for this.  For one, there are lots of expenses in the present that are important, and so it is just hard to find enough money to save for the future.   But even when it is possible to save for the future, your ‘old’ self feels distant from who you are now.  It is hard to deny your current self to benefit the person you will be after you retire.

So, what can you do to help yourself save enough for retirement?

This question was explored by Christopher Bryan and Hal Hershfield in a paper in the August, 2012 issue of the Journal of Experimental Psychology: General. 

They point out that there are two distinct ways to try to convince people to save for their future.  One is to remind people that it is in their own best interest to save money for the future.  That is, people must be reminded that the money they save now will be money they get to use later. 

The second is to appeal to people’s sense of social responsibility.  People may have a hard time visualizing their future self, but they certainly know that self is someone close to them.  And most people spend money on their close relatives in addition to themselves.  So, appealing to people’s responsibility for their future self may be an effective way to get them to save for the future.

To test this idea, employees at a university were given one of two persuasive messages about retirement savings.  One message focused on how retirement savings were in the person’s best interest.  The other message focused on how saving for retirement was a responsibility to that person’s future self.  The researchers also gathered information about how socially close people felt to their future self.  Finally, the researchers gathered information from the university benefits office about how much money people chose to save for retirement after seeing the messages.

The message about self-interest had no influence on people’s behavior.  That is, reminding people that it was in their self-interest to save for retirement did not spur additional savings.  The message about responsibility for the future self did affect some people, though.  In particular, people who felt socially close to their future self were much more likely to save additional money for retirement after being exposed to the message about responsibility.  Those people who did not feel socially close to their future self were not much more likely to save for retirement.

The results of this study suggest that if you want to help protect your long-term self from your short-term self, there are two things you need to do.  First, spend some time thinking about who you are going to be as you get older.  This exercise will help you to feel closer to the person you will be in the future.  Second, remember that you have a responsibility to treat your future self as you would any member of your family.