We are a nation of consumers. If you head down the bread aisle, there are about two dozen types of bread choices. All with their own different brands and marketing. Pull back again and take note that we are a nation that has an entire aisle contributed to bread!
It seems absurd that the average American under the age of 35 have less than $6,000 to their name 1. To a lot of individuals who are personal finance enthusiasts, it’s kind of like entering the Twilight Zone. Someone with a five-figure debt can go out, buy a new Toyota and still be happy with that purchase knowing the avalanche of debt they have just acquired. Sadly this is not an extreme example by any means. So why is it that some people just won’t save?
Did you know that my major in college was neuropsychology? Developmental neuropsychology to be exact. That stuff was like ocean’s breeze to me, easy breezy. Years later, I started cracking into behavioral finance and the topic of ‘delay gratification’ kept popping up. One particular study – a gem in developmental research, involving marshmallows!
The Stanford marshmallow study was a ground breaking psychological experiment completed between the late 1960s and 1970s. The experiment involved little children (age 3 to 6) of equal genders. The children were told they can eat one marshmallow now or wait and get two marshmallows later. Basically, one treat now or two treats when the experimenter returns.
All the children received marshmallows either way but the children who can delay gratification got twice the marshmallows after 15 minutes of unsupervised waiting.
The videos were adorable. A struggling club of rug rats scooting their booty trying to fight the enticing marshmallow before them. Some children consumed the marshmallow the moment the experimenter left the room, some children bounced struggled and squirmed until succumbing to the soft gooey treat, and finally, some children were able to wait the entire time to get the second marshmallow. The children who were able to delay gratification had better life outcomes.
“[the children who waited] ended up having higher SAT scores, lower levels of substance abuse, lower likelihood of obesity, better responses to stress, better social skills as reported by their parents, and generally better scores in a range of other life measures.”2.
I bet money the children who were able to delayed gratification had fuller retirement accounts too. Good job kiddos!
When your situation looks bad, it is much easier to give up hope than look for another solution. Learned helplessness is a similar phenomenal where people attribute negative consequences to an internal characteristic that is perceived as stable. For example, someone who has problems saving money associates the problem with “this is just who I am” then they will have a much more difficult time breaking from the cycle. The individual who do not believe they have any control over their situation do not direct themselves towards a solution based mindset.
We used the same perception with others under the guide of fundamental bias. This is probably why personal finance mistakes (such as properly battling credit card debt) is so embarrassing. It’s easier to give up on something than to fight it.
O.K. not everything has deep-rooted psychological problems. Some people simply have bad health. Weak immune, weight, blood pressure, diabetes, allergies etc. I have a select few among my peer group who question their own longevity beyond the age of 35.
Surprise, surprise – none of them saves! If you have consistent and bad health, why would you save or work towards an early retirement? Should you not just enjoy every day while you still have it?
I am not really sure how to respond to something like this. Admittedly, I do take my health for granted. I pride myself in having “Cockroach DNA.” (I’m so proud of that term I want to copyright it, just like when Paris Hilton tried with “that’s hot.”)
Cockroaches are gross but cool. They have thrived on the evolutionary periphery for 320 million years! I’m a cockroach. I grew up in the United States without any insurance for the majority of my life because my family was dirt poor. Yet I run like a well oiled machine! I am a cockroach! 😀
This one is simple, I’m stubborn. Thankfully I’m
stubborn persistent when it comes to money. Some people are fastened to their pattern of spending. It does not take long for a spending habit to solidify. Money habits develop and set during adolescence 3. Debt is personal; admitting any fault can be difficult too. There is no real problem with overspending until the music stops. For individuals who tend to be stubborn, it takes a massive shakedown to break the cycle. Tack on the three other issues addressed above on top of that and their behavior never changes.
Great point contributed by Mrs. Groovy. Parental influence play a huge factor on what we learn as children when it comes to money management. We tend to emulate our parents so if our parents were spendy, we tend to gravitate to spending as well. It’s what we know.
My husband and I both came from frugal households. My parents were frugal by force since minimum wage in San Francisco doesn’t get you very much or very far. Hubby’s parents are your traditional millionaire’s-next-door types who were conscious spenders and well prepared for anything.
Higher Income Later
Ah, a great point from Mr. MSM. I totally missed this point myself even though I’ve seen this thought process in action plenty of rounds before.
Personally, I think it’s a total excuse and probably the worst offender on the list to have. Unless you are a starving graduate student who is banking on a six figure salary after graduation, I see this mentality as a completely dangerous one. Who really knows what the future will be?
Later is always the perfect excuse and it’s starting to become my most disliked word. Referencing back to the sensitive areas of development in my previous point, I believe for many people who have problems holding onto money that it’s important to get into the habit of saving. Practice makes perfect.
I can vouch for this. My parents did not drop a pound of knowledge on me in terms of managing money. I saw they were frugal by force (being poor) and I copied their frugality. If it was not for that critical part of my life where I noted the importance of saving from my demonstrative parents, I would have spent most of my money too. A lack of financial awareness is forgiving. Financial awareness doesn’t hit everyone at the same time but a late start is better than no start at all.
This was a great point by Ying, who wrote a follow-up post on this one about why millennials have a hard time saving. Believe it or not, I fell victim to the same mentality too! From the start of college to a year after college…and I didn’t totally snap out of it until I turned 23 years old.
I even recall when I was 20 years old, I bonded over the “importance of being pretty” with a girl I shared a lab schedule with. I said “we’re only pretty right now – it’s not like we’ll be pretty when we’re 50. If I wanted that dress and I’m still a size 2, then I should be able to buy that dress guilt-free.” She nodded along in unison like I was the preacher for dumb vapid girls dot com.
At the time I was foolish enough to believe it to be true. Shouldn’t I capture youth because youth is fickle and beauty will eventually fade? Why should I save if I need the money right now to look my best? Oh…boy…this is embarrassing. Having just turned 26 I wish to turn back time and slap my 20 year old self. Youth is something everyone gets to experience once but the rest of your life is something we’re all stuck with! That’s the right reason to save! Please kill off that YOLO mentality before it’s too late.
What are some other potential reasons why someone won’t save? Do you think having health issues and questionable longevity excuses them from pursuing financial freedom?