Slideshows | October 14, 2014

Six thinking traps that can help – or hinder – savers

An overpriced burger on a menu or the very expensive bottle of wine on a list. These are well known examples of anchoring – the items serving as a reference point to make others look reasonably priced in comparison.

But this anchoring thinking trap can apply to savings as well. And so can many other thinking traps, including procrastination and peer pressure.

Don’t get stuck on a number
If a saver has been putting aside EUR50 each month, the regular sum may serve as a reference point if they want to increase it. In comparison, EUR100 is double and may appear like too much of an increase – even if the saver can afford it.
A better way might be to take a fresh look at income and spending and see how much can be saved in the future, irrespective of how much has been saved in the past.

 

 

1

Just do it

One of the biggest enemies of saving is procrastination – putting off a task, possibly forever. For saving, getting started early is important. Cultivate a savings habit by transferring an amount every pay day, and don’t delay.

2

Earn interest on interest

Undervaluing the power of compounding interest can be a mistake for savers. Similar dividend reinvestment for share investors, it can be a key way to grow saving and create exponential growth over time.  

3

You can’t ignore inflation

Inflation, a general rise in prices, can be helpful for borrowers but eats away at the spending power of savers. Ignoring inflation is dangerous for savers, especially those planning for the long term.

4

Harness the power of friendship

Here’s a technique that can help: using a commitment device – such as making a bet with a friend you will save a set amount each month for a year. It channels peer pressure in a positive way and cuts temptation to skip a month of saving.

5

Don’t get stuck on a number

If you have been regularly saving EUR50 a month and you decide to increase it, try to not get tied to the EUR50 as a reference point. It might be a form of anchoring. Do an objective evaluation of how much you can save – that way “doubling” to EUR100 might not seem so daunting.

6

Make a list

The flipside of saving is spending. So controlling one might help control the other. The shopping list effect is how impulse shopping has been shown to be reduced by the simple step of making a list before hitting the shops. 

SavingPeer effectsProcrastinationEntertainmentAnchoring

eZonomics team
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