Brain into Better Financial Behavior

 

Here’s a scary thought: We use the same part of our brains to think
about our future selves as we do to think about strangers. If our future
selves seem so far away and strange, how can we care about what
happens to them? No wonder so many of us make such poor long-term
financial decisions!
The sad fact is that 40% percent of Americans have no retirement
savings, while another 40% have less than $100,000 saved for future
needs.


The solution? Some behavioral economists say it’s possible to trick our
brains into caring more deeply about our “future selves.” This, in turn,
may help us get more excited about planning for the financial security of those future selves. Here are three tips:
1. Who’s that old guy in the photo? It can be hard to imagine
ourselves in our 60s, 70s, or 80s, which is why researchers suggest
modifying photos of yourself to look older, then looking at those pictures before making financial decisions that can help or hinder your
retirement.
2. Commit now to save later. Even if you’re resisting the idea of
restricting your spending today, there is something you can do right this very minute that will help you start saving money—if not today, at least in the near future. Behavioral economists suggest planning to save: “Don’t ask people to save more today; ask them to agree today to save more tomorrow. It works.”
3. Make saving automatic. We’d much rather leave things the way they
are than take action or create change, which is why some companies
are automatically opting people into retirement plans like 401(k)s.
People can still take action to opt out of the program, but they don’t
have to do anything to stay in. And just that little twist, researcherssay,
is increasing participation exponentially. [Source]

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