People often ask me for advice on two things: how to save money and how to invest. In this post I want to talk about the first part. It so much how to save but first to start to understand why people don’t save. Saving was not so much taught to me as it was engrained in me. Saving was so second nature that I often was perplexed as a youth and a young adult by all the people who didn’t save. I would see people make risky decisions with their finances and just asked myself, what if they had an emergency like a car accident and they needed their car to get to work, don’t people think of these things?
What is interesting is that while many people spend much of their adult lives learning how to save, I actually had to spend much of my adult life learning why people don’t save. This post will talk about what I think are some of those reasons and how to start to become conscious of them.
What the Pundits and Blogs Say
If you Google why people don’t save money a number of posts and articles by bloggers and pundits will pop up that really don’t seem satisfying in terms of what I have witnessed over the years. Answers range from the greed of banks and marketing companies, slowing wage growth for the middle class, the Yolo mentality, to human evolution and how saving was frowned upon in hunter gatherer communities. However, none of these really make any sense to me because they are all explanations outside of one’s self that rationalize why people don’t save. Saving is a very personal decision that each of us make through our actions on a daily basis. If you are determined to save, no matter how little you make, it can happen. It’s not demeaning to anyone to say that money can be saved at any income level.
Just take a look at how personal savings has evolved in the US, real incomes were lower for our parents and grandparents and yet all those generations managed to save more of their income than people do currently in the US, just take a look at the chart below from the Peterson Foundation.
Source: Peter G. Peterson Foundation
Where it Starts
Saving is really about the future, it’s about delayed gratification. In order to save, you have to be deeply vested in, and have a vision for, the future. It requires a future mentality and this is not what most people have. Most people have a right now mentality. The urge to spend on things right now is so great that people can’t resist it, even when they know it’s detrimental to them long term. This psychology is really what started to get me interested in behavioral finance and the psychology of saving. Why is the now so irresistible for some people? Why do people treat current consumption like a drug they can’t do without? The answers, I’m afraid, are not that comforting and they go much deeper than just hunter gatherers or Yolo.
The Real Reasons
1. Your Environment – Motivational speaker Jim Rohn said we are the average of the five people we spend the most time with. Many of us are surrounded with people that don’t plan for anything long term and we are just subconsciously repeating their behavior. If you constantly surround yourself with people like this, they will essentially have a stranglehold on any attempt to exhibit saving behavior. Whether it is through pressuring you to party, buy things you don’t need or lend them money, there will always be a reason for you to spend something around these types of people. This is likely because they are spending time with people who also do the same. They may even be counting your money and voicing their opinion on how you should be spending it. This can put your saving and your friendship or family ties into conflict. They may have their own reasons for not saving including the others listed here. If you find yourself wanting to get into the savings habit, you may first need to think of who you are around the most and if they are people you consider good or successful with money. If they aren’t, you may need to start changing some people in your circle in order to change your spending habits.
2. Wanting to Feel Accepted, Loved or Powerful – This is part of the fuel for the keeping up with the Jones’s mentality. Maybe you felt like an outcast at some point in your life. Once you had the money, you started to dress like, or consume like the people you wanted to be accepted by. Money in this case is a means to try to redeem yourself and gain a sense of validation from others that you lacked at some other point in life. Or it could be that you are from a socially marginalized community which has a stereotype of being poor. If you have some money, you may spend that on projecting the opposite of that stereotype to other people. In essence, this communicates to people: I’m not what you think I am. Maybe you want to feel powerful. Showing off material goods or living in a certain neighborhood will give you a high at the anticipated or materialized envy of others that want to be powerful and admired. However the sheen of new things will only last so long as people adjust and become accustomed to where you live and what you have. What was once new will become normal and then many will start looking beyond what they have and aspire for more again. These people will keep seeking new material goods to project that image and give them a new high once again. No amount of money will ever be enough because these people will constantly compare themselves to someone that has even more.
3. Fear – This is wide ranging and can also tie into 2. Fear may drive the helpless person that says the system’s all rigged anyway or the person that feels that down the road it will all be better and work out for the best. People who say these things may have a fear of taking control of their own lives because it would force them to ask some difficult questions of themselves. These questions may conflict with their lifestyle and their values overall, which is why they avoid them. Saving may cause them to conflict with their identity. If I start saving and saying no to people who ask for money, am I greedy and heartless? Am I a bad friend who doesn’t help those around them? If it isn’t the system that’s rigged could it be me? Do I have a problem that I’m not acknowledging that causes me to spend money? People may have fear of being an outcast (see 2.). If I don’t live in a great neighborhood or drive a nice car, what will people think of me? Will they laugh about me behind my back and think I’m poor? Will they think I’m a nobody because I don’t own the same things that they do? Maybe you have a fear of changing your habits and getting out of your comfort zone. Saving may mean you have to learn new things and expose your ignorance of money and markets. As smart and accomplished people, we don’t want to feel like novices or students again, it’s easier to stay on track only with what we know, ignorant of all things beyond our level of expertise or comfort.
4. You Don’t Believe in Yourself – Some people don’t have any faith that the future for them will be any better because they don’t feel that they have the ability to improve their lives in any meaningful way. The future for them can’t be better than now. They may think all I am is what I am now, and that’s all I’ll ever be. This is one of the most difficult mentalities to break because it may have deep roots in how people were treated by society or by their family growing up, or both. Some people may feel unworthy of a good future life with money and comfort. Worse yet, they may feel they won’t even be around because of their reckless behavior, so why even bother to think of the future? There is a degree of self loathing in this type of thinking and the lure to escape right now may take precedent over anything in the future. Some people escape through drugs, alcohol, sex or even shopping to avoid this nagging feeling deep down within themselves that their life is meaningless, pointless or less valuable than someone else’s. There is also a habit that relates to belief in one’s self as well as 1. called learned helplessness. A state of mind that leads people to believe that there is nothing they can do to escape a negative situation. This can often arise with people that have had multiple negative experiences with money. The more often they have failed at saving, the more likely they are to chalk it up to not saving being a part of who they are.
None of Us Are Condemned
Getting perspective on how you feel about yourself and the world around you may be the first and most difficult step towards saving. It will require honesty about yourself and your feelings that many people would rather not acknowledge. Pushing past this can offer great rewards beyond just money.
Not caring what people or society thinks about you, frees you to make daily decisions that benefit you in the now as well as in the future, more clearly. Finding happiness and contentment within yourself without needing to seek validation from others will free you of the need to project things in terms of material goods.
In my case, after many years of chasing more money towards what I thought would make me happy, having much of it taken away from me was the shock that helped me realize that I had the ability to choose my own happiness regardless of what was going on around me. Although I had been saving all along, this realization helped me to make better decisions, even if I was already making good money decisions by most people’s standards. I now live almost the same way I did as a college student and am considering selling my car as well. I am just as, if not more, happy than any point I have been in my life and asking those hard questions of myself is what spawned this approach towards living a more simple life regardless of what people have to say about it.
At the end of the day, what many of us want is happiness and our daily actions and struggles are in pursuit of that happiness. No one is condemned to a life of self loathing, unhappiness and being broke. Taking charge of your life and changing your approach to it can revolutionize the way you look at all things, including your money.
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