The Psychology of Savings – Why It’s So Hard and 5 Things We Can Do About It

Nearly one-third of Americans (31%) have less than $5,000 saved for retirement.

Nearly half (40%) couldn’t cover a $400 emergency without borrowing money or selling something.

Since you’ve probably heard stats like this before, you may already know we humans are terrible at saving money. Why, though? For starters, there are a myriad of societal and economical factors like low wages, higher costs of living, insane student loans, and so on. But, what’s the real root cause of our inability to save? And how can we combat our natural tendencies to finally start investing in our future?

Here’s what psychology says — and how you can use it to get ahead with your own finances.

Why We’re So Bad at Saving Money

It all goes back to when we were living in tribes, according to Ted Klontz, a financial psychologist and professor at Creighton University.

Since tribes operated communally, keeping something you didn’t currently need made you look selfish — and could eventually get you kicked out. Which meant you didn’t pass on your DNA. Similarly, if you saved your food from one day to the next, you could get sick and die. Which, again, meant you didn’t pass on your DNA.

Even 100 years ago, humans were more communal, with several generations pooling resources under the same roof. We also only lived into our 40s, meaning we didn’t need to worry about surviving multiple decades without working.

While Klontz notes a small portion of humans — between 14% and 17% — are natural savers, it’s plain to see why the rest of us simply aren’t wired that way.

How Traditional Financial Institutions Exploit Us

Traditional banks and credit card companies are well aware of the statistics. In fact, their business models thrive on that knowledge.

Klontz says credit cards, in particular, have created an “artificial bottom.” When older generations didn’t have any money, they couldn’t buy anything. But today, you can put it on plastic. And when you do, the issuing bank will charge you an interest rate — often as high as 22%.

“They’re making money off you spending more than you have,” Klontz says.

Financial institutions also charge exorbitant fees for making small mistakes, essentially profiting off your sheer human-ness.

Although no-fee banks do exist, Chime’s Bank Fee Finder found the average American household pays $329 in bank fees annually. In 2016, the big banks earned $33 billion in overdraft fees alone.

Five Ways to Finally Start Saving Money

Ready to combat both your brain and the big banks to finally start saving?

Before you do that, you should know that your subconscious brain makes 90% of your decisions without you realizing it, according to Klontz. And that part of the brain, he says, hasn’t “received a programming update for 100,000 years.”

So, to bypass your subconscious brain, you’ll need to speak its language. It won’t respond to logic or equations or charts; it’ll only respond to fear and pleasure. That’s right: You literally need to scare or excite your subconscious brain into submission.

Here are five ways to do so.

1. Use all five of your senses

Did your third-grade teacher hang a goal chart in your classroom? Maybe it was a “good behavior thermometer.” When you reached the top, you had a pizza party. Or maybe it was a poster that showed how close you were to reaching your reading goals.

As it turns out, those visual depictions are very effective.

“Your subconscious brain doesn’t get abstract concepts,” explains Klontz. “It’s very literal — like a 6 or 7 year old.”

Translation? “Any work to change the subconscious has to be sensory. It has to go beyond words,” he says.

So, if you’re saving for a trip to Peru, you could sketch a picture of Machu Picchu. You could listen to some Peruvian flutes. You could visit a local ceviche restaurant. You could tell your co-workers the myriad reasons you’re dying to visit.

The more you can see, touch, hear, smell, and taste your goal, the more likely you are to pursue it, says Klontz. That’s because each new sensory experience reminds your subconscious why you’re saving money in the first place.

2. Scare yourself

While retirement might seem far away, the sooner you start saving, the better off you’ll be.

To spur yourself into action, think about what would happen if you don’t save a dime. Picture the worst-case scenario for the last three weeks of your life. Where are you? Who’s there (and who’s not)? What does it smell like?

It’s probably not pretty. And by imagining it, you’ll stimulate your subconscious brain into changing its behavior — especially if you also picture the decisions that led you there.

Taking it a step further, Klontz recommends using age progression software like the free AgingBooth app (iOS / Android).

“When you take a 30- or 40-year-old person and show them what they’re going to look like at 70 or 80, their savings rate increases dramatically — up to 200%,” he explains.

3. Automate your savings

Another way to trick your brain is to, well, not really involve it all. By turning your savings on auto-pilot, you’ll relieve your subconscious brain of its decision-making duties.

“If you don’t see it, you don’t feel it,” says Kathleen Burns Kingsbury, a wealth psychology expert and author of Breaking Money Silence.

Research, for example, shows that when employers automatically enroll their workers in retirement plans — forcing them to opt out, rather than sign up — it significantly boosts participation rates.

We’ve found this with Chime customers, too. People who enrolled in both of our automatic savings programs save an average of 240% more than those who aren’t enrolled in either.

4. Find a buddy

Whether you’re trying to quit smoking, exercise more, or save money, accountability is a key factor in behavior change.

Kingsbury suggests finding a friend who is also trying to build better financial habits, and then challenging her to a saving contest. Whoever saves the most by the end of a certain period will be crowned the winner. This strategy transforms society’s current definition of “winning” (flashy car, bigger house) into a more fiscally responsible one (saving more money).

Experts also say the most effective rewards are intrinsic: Enjoying the feeling of saving money, for example, rather than rewarding yourself with something tangible.

5. Put your values on the line

Name an organization you truly loathe. Perhaps it’s the campaign fund for a politician you oppose, or an advocacy group for a cause you disagree with.

Whichever organization it is, sit down and write a $100 check to it. Then give that check to a trusted friend. Tell him if you don’t save, say, 10% of your paycheck this month, he has your permission to mail it. (If you don’t have a checkbook, you can use an app like stickK.)

Since Klontz says negative emotions have “twice the motivating effect” as positive ones, this “anti-charity” technique can be powerful.

Today’s the Best Day to Start Saving

While you can blame your struggles to save on your internal software, you can’t use your brain as an excuse forever.

It’s never too late for a fresh start, so use the tips above to circumnavigate your subconscious — and set yourself up for future financial success.