Saving Success with Behavioral Economics / By: London Gibson-Purcell
Saving can be a hassle. There are temptations that exist in all parts of life. According to CPS student, Laylen Bates, “I spend most of my money on food and clothes, saving has always been difficult for me.” Being open to saving is the best way to start. One method of saving is through behavioral economics, which explores the psychological and social effects of the decisions people make. According to The Atlantic , “.. behavioral economists have a concept called the “pain of paying.” The phrase refers to the psychological discomfort experienced when parting with one’s money…” ( Joe Pinsker, 2018 ) . You may like that new purchase but your bank account surely won’t. Exploiting the pain of paying can help you save. According to Harvard Business Review , “...the majority of consumers with access to their financial information on mobile phones check their balances before making large purchases. Of those who check, 50% decide not to buy an item because of the feedback” ( Shlomo Benartzi, 2017 ). Using a mobile banking app allows the pain of paying for something to be more apparent. Another strategy is through incentivizing the financial decisions you make. When you go a certain amount of time without spending money on items you don’t need, reward yourself with a gift. When you are close to going through with an impulsive buy, stop yourself and write down all the other things you could buy with the money. You are considering the opportunity costs of all the decisions you make. In the end, you will create a system where you are saving money and still splurging on the things you really want. Behavioral economist, Jason Reed at the University of Notre Dame says that specifically for teens, “you should try to follow the common 50/15/5 rule. That means you should aim to have no more than 50% of your take-home pay dedicated to essential expenses. You should save 15% of your pre-tax earnings in a retirement account, and also save 5% in a short-term savings account.” Physically removing money from your access will be favorable. Starting now to implement these strategies into your life could prove to be very beneficial. You have to overcome those temptations!