Can you train your brain to save?

Canadians have a reputation for being modest, but there’s nothing demure about our spending habits - we’re on a spending spree with no clear end in sight. A report from Statistics Canada shows that we’re up to our eyeballs in debt with a paltry household savings rate (what remains after our spending) of 1.7 per cent, or $852. That is the lowest number in six decades.

In comparison, the U.S. savings rate is over 8 per cent, and household debt is much lower than it was prior to the 2009 financial crisis. And in Germany, where interest rates are negative, households save over 11 per cent.

A recent debt survey found 40 per cent of Canadians don’t expect to get out debt in their lifetimes. The average person carries almost $72,000 in debt, a 26 per cent increase in five years, according to Equifax.

What this means is, should increase rates ever tick up, Canadian consumers will not have a lot of wiggle room to maneuver. There’s already been a 20 per cent rise in consumer insolvencies, with the largest increases in Alberta, Newfoundland and Labrador, and Ontario.

Getting better at saving is key if Canadians want to maintain their lifestyles later on. Low interest rates are a headwind for savers because they encourage us to pile on the debt, not to mention that low rates also create asset bubbles, making assets like real estate more expensive. Nevertheless, save we must. Here are some ways to train your brain to save more.

Attention Savers!

A study in 2018 at Cornell University discovered that we’re much keener on earning than on saving. The chance to earn captures our interest because we see it as immediate. In contrast, saving is seen as something we can postpone. This could explain why even those of us with a good income have trouble saving it.

In the Cornell experiment, researchers set up a micro-economy where subjects could choose whether to earn or save by their reaction to different colours that flashed on a screen. A follow-up experiment measured how long it took subjects to respond to the same colours. In the first part, 87.5 per cent of the participants earned more than they saved, while in the second part, 75 per cent misperceived the colours reporting that they saw “earning” colours even when “saving” colours flashed first. The researchers concluded different “mental muscles” are involved in earning and saving. Hence, a strategy to save more is to gradually pay more attention to opportunities to save, not just to earn.

Old School

Several studies have found that when we visualize ourselves as older, we’re more likely to delay the immediate gratification of spending. At London Business School, the researchers used computer-generated renderings to “age” participants. Those who interacted with older versions of themselves became more future-oriented in their financial decisions.

Other ways to get more aligned with our future financial needs is to spend time with older people, either within one’s own family or as a volunteer at a seniors’ residence. When we’re younger, it’s easy to convince ourselves that we’ll never age or have financial needs such as home care, disability or medical assistance. A wake-up call could shake that complacency and help us to take saving more seriously.

Low interest rates – which some experts predict will be with us for 30 years or more because of an aging population – give us another incentive to save. Millennials may need to ramp up their savings to 20 per cent – double the rate of baby boomers – in order to retire comfortably.

Proven Saving Hacks

1. Do a cash flow audit so you know where you stand. Check what comes in, what goes out, and what stays in. Before jumping into a new savings regimen, simply track where your money goes by reviewing the past year of credit card statements. You might be surprised to see where you spend.

2. Once-a-year automate your savings. As soon as money comes in, before you can touch it, it should sail into your designated accounts. This way, if you choose to spend more, you’ll have to re-set your banking preferences – and most of us are too lazy to do that!

3. Spend to save. Can we all agree that we’re tired of being chastised for drinking a good take-out latte daily? The key is to spend on things that give good value for the dollar. One discussion on AskReddit elicited a wide range of responses that included such smart spends as “paying for movers instead of doing it yourself”, “quality bedding”, “better garbage bags”, and “a phone charger with a longer cable.” Your list will be just as unique. Check it against your actual spend and see how well they match up. If there’s a difference, adjust your spending to where it really matters and save the rest!

Rita Silvan, CIM™️, is personal finance and investment writer and editor. She is the former editor-in-chief of ELLE Canada magazine and is an award-winning journalist and tv media personality. Rita is the editor-in-chief of Golden Girl Finance, an online magazine focusing on women’s financial success. When not writing about all things financial, Rita explores Toronto’s parks with her standard poodle.

Rita Silvan is a paid spokesperson of Sonnet Insurance.

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