Stories | December 3, 2013

Going around in circles? How the “time paradox” can affect your finances

Do you tend to think about the here and now – or are you more focused on the future?

Time perspectives have been shown to have an effect on how we spend, save and invest money. And, interestingly, certain cultures appear to be more inclined than others to think about time in a certain way. 

Around in circles?
Two well-known ways of thinking about time are “linear” and “cyclical”. A typical American, allegedly, thinks of time as linear. That is, the past is behind and the future is ahead, and lives consist of "separate and progressive" periods of time. According to author Herbert Wray, writing on the Association for Psychological Science website, many - but not all - cultures share this linear view.

Others may see time as cyclical, with patterns of events and behaviour recurring in short or long cycles throughout a lifetime. These differing views play such a fundamental role in our lives that for many the idea even goes unnoticed. Psychology professor Philip Zimbardo describes his research on time in this RSA animate clip, exploring cultural notions of time including pace of life and past, present, or future-orientation.

However, embedded and subtle, underlying attitudes about time may make tangible differences to our lives in areas including our bank balance.

Past, present, future
In his book The Time Paradox, Zimbardo explains that people’s time perspectives may influence how they spend or save money. For example, people who focus on the past and think about the good old days (referred to as past-positive) tend to be frugal, risk-averse, and avoid debt. However, if they dwell on the negative aspects of the past (past-negative), they may be more likely to try different financial strategies than they have previously.

In research by Leona Tam and Uptal Dholakia, called Saving in Cycles, a series of experiments investigated the role these points of view play. The academics primed participants to think of time as either cyclical or linear by having them read a passage for what appeared to be a separate study. For some participants, the passage described the idea of time as linear, discrete, and progressive, whereas for others the passage described the idea of it being cyclical and recurring. Then, with these different ideas primed in the minds of the participants, the researchers asked them a series of questions.

The ups and downs of cyclical time
It turns out that thinking about time as cyclical has its ups and downs. On the one hand, people tend to be less optimistic about the future (and optimism can be dangerous for the wallet) perhaps being more realistic.

On the other hand, this realism seems to encourage more concrete planning for the future, specifically including putting more money away into savings, in case of an unforeseen financial need.

Talking about time
Of course, saving more isn't always the best strategy for everyone. Some people are already saving enough, or need all the income they make now just to cover the necessities. But if that's not you, and you'd like to get into a pattern of saving more for a comfortable future, then perhaps a helpful tip is to reframe your thoughts about the nature of time.

As the Saving in Cycles authors suggest, savers can encourage a cyclical way of thinking. Instead of ignoring past mistakes and focusing on the future, put the here-and-now into the frame and use pay cycles and other recurring events to boost motivation and savings.

Another suggestion is for HR managers to use language that alludes to cyclical time and the present, when discussing pension contributions with new employees – rather than the more linear future focus, which can be difficult for workers to envisage. There’s also room for parents and teachers who are trying to build healthy money habits in children to use cyclical techniques.

Nathalie Spencer
Nathalie Spencer

Behavioural scientist at ING

SavingBiasIrrationalLife cycleOverconfidence