Even though most Americans work quite hard, they have little or no savings. An average American working couple’s retirement fund only amounts to some $5000. For working-age families the situation is even worse, nearly 43 percent of them have no money saved up for their retirement, suggests a recent analysis of a 2016 Federal Reserve survey.
One new study done by neuroscientists from Cornell University suggests that cognitive bias might be the culprit behind our empty savings accounts. The study suggests that humans have a strong cognitive bias towards how much they are earning. This bias makes them think more about earning money than saving it. The bias is quite powerful and can even twist our sense of time.
Adam Anderson, associate professor of human development at Cornell University, and one of the authors of the study said, “Fundamentally it comes down to this: saving is less valuable to our brains, which devote less attentional resources to it. It’s more than a financial problem of making ends meet. Our brains find saving more difficult to attend to.”
For the study, researchers asked several individuals to participate in an experiment, where participants could earn or save money by answering how different colors represented saving or earning money. Researchers also observed how quick were the participants in processing colors for what they stood for.
The results of the first experiment indicated that nearly 87.5 percent of the participants earned significantly more than they saved. The temporal perceptions of the colors were twisted for nearly 75 percent of the participants. Colors tha signified earning money were seen first by many, which shocked researchers because the colors associated with saving money had appeared first.
Subsequent experiments revealed that bias can occur even if all the color connotations with earning and saving money were hidden or subdued- this cognitive bias was called “savings posteriority” by researchers. Eve De Rosa, co-author of the study said, “Saving is so devalued and unattended that we perceive events associated with saving as occurring later in time.” “Even without bills to pay, our brains put a thumb on the scales, making it easier for us to earn than save”, added Anderson.
To make sure that people can save more money despite the strong bias, researchers suggest that people should start with attentional retraining- which is when one consciously pays attention to saving money. While it won’t suddenly increase the cash value of people’s saving, but it will definitely change the way our brains perceive saving and earning money, and in the long run may even help people save much more.
“It’s practicing attention and intention to save, to strengthen the value of it for your brain. It’s not the amount of dollars that matters,” explained Anderson. De Rosa also added, “And you’ll probably see other avenues and opportunities as your brain learns to value saving.”