Published in: Banks | Nov. 16, 2019

How the Brain Makes It Tough to Save Money

By:  Dana George

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Do you struggle to save? You are not alone -- and your brain may have something to do with it. 

Recent research by ING showed that almost a third of Americans have no money in savings. If you are one of them, you may lose sleep over things like retirement, how you'll pay for your children's education, and what you'll do if there is an emergency.  

Many of us have savings goals, and yet, many of us fall short of them. We tell ourselves that we'll save more when we have a better job or have paid off a large bill. That day arrives, and somehow the extra money gets absorbed into the cost of daily life.

Woman in glasses looking up at drawings of many light bulbs, only one of which is lit up.

Image source: Getty Images

It's easy to beat ourselves up for not being more disciplined. But according to researchers, it is partly down to the way we are wired -- our brains actually erect obstacles to saving.

We're not wired to save

Since early man roamed the Earth, we have focused on that which keeps us alive: food, shelter, and the safety of belonging to a group. Our need to survive meant we had to live in the here and now, which is why the primitive part of our brain is programmed for survival. 

And we didn't used to live as long. The average life expectancy during the Roman Empire was 25 years. By the Middle Ages, it had reached 33, and by the early 1900s, people lived to 55. 

In short, for most of human history, man labored hard and died young. The concepts of saving for old age or spending thousands of dollars to educate our children are relatively new. We are not wired to plan for a future that feels far off and somewhat abstract.

Built in biases

Scientists have identified built-in brain biases that cause us to favor immediate rewards over future benefits. For example, we know that we're going to face an emergency at some point, whether it's an illness, job loss, or home repair. And yet, we feel better about making plans with friends to go out to dinner and a movie than we would tucking money away for a rainy day. We don't allow ourselves to consider the fact that we just traded security for pleasure because we are so conditioned to live in the moment.

There's also research into the way we view compound interest. It's not that we can't understand how it works, it's that we don't want to think about it. It's easier to charge something to a credit card if we don't consider how much that item will cost when interest is factored in. And it's easy to delay savings if we don't think about how much compound interest could make our money grow.

We understand the math, but don't want to deny our desires in the moment.

We're compelled to earn

A 2018 study by neuroscientists at Cornell University suggests that humans have another bias -- this one geared toward earning. Their experiment showed that our brains tune out information related to savings because we are so laser focused on earning. 

Study co-author Adam Anderson says saving is less valuable to the brain and so it devotes less energy to it. The brain unconsciously focuses on earning over saving, going so far as to distort our perception of reality.

Love and money?

Another study, this one from the National Institutes of Health, showed that the brain reacts similarly to love and money. Researchers found that the same brain regions that light up when we feel love also come to life when we anticipate material rewards. In short, our brain circuitry reacts in the same way to both -- and in turn makes us feel good.

Conversely, the brain circuitry that activates when we're in physical pain also activates when we anticipate financial loss, and frankly, for a species that has not yet adapted to saving for the future, putting money away can feel like loss.

How to outsmart your brain

Ask anyone in their 70s or 80s if they ever imagined they would reach that age and they are likely to laugh. But what if you live longer than you imagined and want to live in relative comfort? Here are some tricks that can help retrain your brain to save rather than spend:

  • Automate savings. Automatically transfer a percentage of your paycheck straight into your retirement fund. It's amazing how much easier it is to live without money you've never held in your hand. If your employer matches a portion of those retirement funds, strive to invest at least as much as is matched.
  • Open a separate savings account for things like taxes and insurance payments due throughout the year. Most deposit programs allow you to split your paycheck so that part goes into checking and part goes into savings. Figure out how much you need to cover those less-common expenses and divide that amount by the number of paychecks you receive each year. Divert at least that much into savings.
  • Create a training regimen. The neuroscientists who conducted the Cornell study recommend putting away one dollar a day. It's not about the dollar itself, but about practicing the mindfulness of saving, using your brain in a way it's not accustomed to being used.
  • Enlist a friend. If you have a friend who also finds it tough to save money, vow to hold each other accountable. That means sharing your savings goals and admitting when you get off track.
  • Redirect your activities. We are deluged with messages that we should have more, that we deserve more. Whether you're watching The Real Housewives or a car auction -- if you find yourself wishing you could afford a different lifestyle, turn it off and do something positive. Feeling sorry for yourself makes saving more difficult. 
  • Periodically check your savings progress. Want to light up the reward center of your brain? Look at how much you’ve put away for the future. 

If you are living paycheck to paycheck and are afraid you will never be able to save, you may be surprised by what you can do to find extra cash. And if you're looking for a way to earn extra money, there's an app for that too. 

The fact that we've evolved enough as a species to know that we should save is a good first step. The next step is to outsmart our brains so that we can do it. 

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