Financial experts recommend keeping at least three to six months’ worth of expenses in a savings account for emergencies. Yet 42% of US households have less than $1,000 in savings, and 10% have none at all.
Most of us agree that saving money, whether for an emergency fund or to pay for a child’s college education, is a good thing. Implementing a savings plan is another thing entirely. The rising cost of essentials such as groceries, rent and child care makes it harder to put money aside for future goals.
If you find it challenging to save, you’re not alone. Chantal Chapman, founder and CEO of Trauma of Money, became a mortgage broker by the age of 21 and began teaching financial literacy to others. Even after years of helping clients improve their credit scores, she continued to struggle personally with her finances.
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“You’d think I had a good relationship with money. But I racked up debt. I wasn’t saving. I was always overspending. I was underearning,” Chapman said.
Knowing that we should be setting cash aside is only half the battle. And saving is more complex than creating a budget or getting the right deposit account.
That’s because our decisions about money are shaped by our past experiences, Chapman said. A variety of mental, emotional and environmental factors inform our approach to managing money, and oftentimes our brains may actually be in the way. Are you curious about what psychological barriers could be influencing your financial habits, and how you can overcome barriers to saving money? Let’s dig into what experts say.
How does psychology affect savings?
A significant part of how we approach savings is influenced by the patterns we were exposed to growing up, according to Dr. Ryan Sultan, professor of clinical psychiatry at Columbia University. Those influences can manifest in vastly different ways. For example, a person who grows up with limited financial resources may develop into a workaholic to avoid the scarcity experienced in their youth. Or someone who grew up in a household where money conversations were taboo may find it difficult to discuss their personal finances.
These early experiences that form our beliefs about money are known as our “money scripts” -- a term coined by Brad Klontz, a certified financial planner and financial psychologist. Money scripts, which are often passed down from parents and influenced by our culture or the people we hang around, can impact how we cope with risk or deal with long-term financial planning. They’ll affect how we manage our budgets, invest our money and, of course, approach saving.
While our foundational beliefs are not set in stone, they do play a critical role in our adult perspectives and behaviors. “Imagine you’re trying to save for retirement, but your underlying belief is that money is evil,” Sultan said. “This internal narrative could lead you to make poor investment choices or even avoid saving altogether.”
Our money scripts can be divided into the following four categories:
Money avoidance. You try not to think about money because you might equate it with negative qualities such as greed, corruption or evil. You may find it difficult to read financial statements, plan for the future or budget consistently.
Money worship. You may believe that the solution to many of your problems is having more money and might tend to spend money to buy happiness. Often, this is associated with excessive generosity and higher levels of credit card debt.
Money status. You link net worth with self-worth and place significant value on material possessions. You may also believe that people with wealth are happier than those of a lower socioeconomic status.
Money vigilance. You’re a saver who usually spends only what you can afford. You’ll likely have healthier financial habits.
What makes us spend instead of save?
According to Klontz, we rarely revisit our money scripts or make adjustments as adults. Harmful money scripts can lead us to spend instead of save, even when we want to do otherwise.
In addition to our early influences, we should consider the impact that our emotional state, stress level and environmental factors, such as social media use, play when we engage in things like “retail therapy.” Financial FOMO, or fear of missing out, can also cause us to spend money on trends that our budgets don’t support.
“We live in a world of instant gratification where you can buy almost anything with the press of a button on your phone,” said Chris Courtney, vice president of science at Happy Money. “It’s easy to get caught up in advertising that makes us feel like we’re missing out on something or that could make us or our lives better today.”
Moreover, our brains tell us to enjoy spending money. Dopamine, a chemical released by the brain that makes us feel good, is our brain’s reward system, Courtney said. We can get a dopamine boost from small pleasures like a piece of chocolate, or when we add items to our online shopping cart, he noted. Craving that sensation could easily lead to overspending.
Strategies to leverage psychology for better savings
Harmful money scripts can be rewritten, and it starts with the brain.
Essentially, we can “trick” our brains into enjoying the act of saving. Connecting financial matters to something we find emotionally satisfying can help us develop better financial habits.
In the 2019 Sentimental Savings Study conducted by Klontz, research found that associating positive emotions with savings behaviors helped participants increase their savings rates by up to 73% at the end of three weeks.
Misty Lynch, a certified financial planner with Sound View Financial Advisors, has a simple approach to inviting the brain to support a savings journey. Lynch has her clients go through their budgets and indicate where they’ve spent money over the last few months. Without any judgment, she asks them which spending made them feel good so they can be intentional about budgeting in the fun stuff. For example, Lynch enjoys purchasing online courses. “I make space in my budget for the things that I like,” she said.
Lynch then asks her clients to identify which spending choices feel awful. Those answers highlight items that can be eliminated from monthly expenses. “A lot of us have some things that we’ve signed up for, apps or subscriptions, that we don’t use anymore. It’s very easy for money to just slide out of our account,” she added.
Connecting our savings and spending habits to positive emotions is one way to use the dopamine boost to our financial advantage. Next, we’ll explore practical ways to establish healthy emotional connections to your finances.
How to overcome psychological barriers to saving
Understanding your internal beliefs about money will help you identify the behaviors that can sabotage your efforts to save money. “Techniques like cognitive behavioral therapy can help individuals reframe their money mindsets and build healthier financial habits,” Sultan said.
Working with a cognitive behavioral therapist or financial psychologist can be advantageous, but therapy isn’t cheap if you’re struggling to save.
If you’re ready to start on your own, Klontz identified seven steps to help you leverage financial psychology to achieve your financial goals.
Step 1: Pick three financial goals. Write them down.
Step 2: Passion-test your goals. Look at each goal and make sure it’s exciting. If not, pick a new goal.
Step 3: Name your goal something specific that evokes excitement. Instead of “vacation fund,” name your goal “safari adventure on the Serengeti.”
Step 4: Time stamp your goals. Add a time frame to the named goals. For example, “2024 safari adventure on the Serengeti.”
Step 5: Picture your goal. Create a craft project with images and words that help you visualize your goal, kind of like a vision board.
Step 6: Create savings sub-accounts. Ally and Alliant Credit Union let you organize your savings into buckets to label your financial goals.
Step 7: Automate your savings transfers. Make money transfers automatic so you can budget with a smaller balance in your checking account.
Beyond working through these steps, try immersing yourself in conversations about personal finance or success stories of people overcoming financial struggles. Listening to podcasts such as So Money is another effective way to get advice and not feel alone.
Though having an above-average income, less debt and fewer expenses makes it objectively easier to save, you still might be hindered by ingrained behaviors and habits. The money scripts formed in your youth should be identified and adjusted if they aren’t productive.
Reflecting on the lessons you’ve internalized about money and how they inform your current approach is a great first step to take. Understanding your financial beliefs while reevaluating your values and goals is critical to coming up with an action plan and a savings strategy.
To learn more about how psychology impacts your ability to save, two resources are Psychology of Money by Morgan Housel and Mind Over Money by Claudia Hammond.
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