I wish I could say I loved saving but I just don’t. The lure of spending today versus saving for tomorrow is fight I often feel like I am losing.
If I were to be clinically diagnosed, psychologists would say my ‘want self’ is winning out in the battle against my ‘should self’, a behavioural science theory that seeks to explain why positive long-term choices often lose out to instant gratification.
And while it may be easy to tell people like me to simply toughen up, the more progressive approach – and probably more successful – would be for financial product creators to understand what drives my behaviour and then use this knowledge to build products that actively help me modify it – for the better.
Getting in touch with the future you
You might be surprised to hear that a big part of why we struggle with putting money aside for a rainy day is the lack of connection we feel to our future self.
As it turns out, science has shown we don’t really connect with the grey haired, wrinkly and opinionated geriatric we are inevitably destined to become. To us, they are equivalent to a stranger we might pass on the street. This means that decisions that benefit this future self continuously drop down the list of priorities, bumped instead by decisions that will benefit the hotter, fitter and less forgetful person we’re relatively guaranteed to still be tomorrow.
When presented with options that offer us an immediate reward for spending our money now, versus a long-term incentive for saving our pennies for ten years from today, we tend to heavily discount the future gains of option two. And while this may serve to further illustrate the irrationality of human beings, it doesn’t hurt to remember that in cavemen times we were lucky to make it past our thirties. Like it or not, we still operate on Stone Age brain machinery that has no concept of the 80 year old you.
But it’s not all doom and gloom. We still have the capacity to train our brains to behave differently. We just need to get better at imagining and connecting into our future self. Surely this would help us make better financial decisions in the present and steer us away from instant gratification?
The answer, as it turns out, is yes. In a study published in the Journal of Marketing Research in 2011, researchers predicted that getting to know the future you better would have a positive association with saving more. To test this out, they allowed study participants to visualise their future selves using virtual reality technology, just prior to making a decision about how to spend an unexpected windfall of $1000. The study participants were split into two groups, with the test group seeing their current virtual self and an aged version, while a control group was only shown a virtual version of their present self.
After stepping out of the VR headset, participants were presented with four options on how they could allocate their $1000 windfall. They could either:
- Use it to buy something nice for someone special
- Invest it in a retirement fund
- Plan a fun and extravagant occasion. or
- Put it into a checking account
As predicted by the researchers, participants exposed to their future self chose to allocate ‘more than twice as much money to the retirement account than participants who were [only] exposed to their current selves.’ The results continued to hold up in three subsequent variations of the study.
So it raises the question, what if, at the point of making financial decisions, such as how to allocate our monthly pay, or whether or not to make that impulse purchase, we could directly see how that action, taken in the present, would affect the quality of our retirement? A timely glimpse into the future could be the simple nudge we need to save rather than spend.
Both superannuation and banks could deliver this type of visualization service today alongside their savings products. While not widespread (yet), immersive VR and AR technologies are on the cusp of becoming accessible to the masses.
Using this type of technology, then based on your past and projected savings behaviour you could generate various versions of your future state, with strong visual cues regarding your retirement lifestyle. Your very own geriatric avatar.
Like the famous Tamagotchi toy we all had as kids, as you started to make better financial decisions that benefitted the future you, this could be mirrored in your avatar, displaying the happier, cashed up version of you at 60 as opposed to the poor and destitute model.
To help kick start the journey and suck you in to buy a retirement savings product, what about a truly immersive experience on the fly? Banks could take their cue from the 3D body scanning booths now becoming commonplace in shopping centres and gyms around the world.
Instead of stepping inside the booth to calculate your body fat percentage and waist measurements, you could step into your future life. Perhaps living it for just a few minutes in the present would be all you need to ensure your daily behaviour going forward was more future financially friendly.
So. Many. Ideas.
The long and the short of it is, even though you might not like who you’re going to become as you age, it turns out getting to know the 50 year old you when you’re twenty could be a boon for your bank account. Why wait to be older and wiser when you can emulate both today and reap the benefits? I’m in.