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The Key to Saving May Be in Your Head

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When it comes to saving, you may have tried everything to make it stick: the New Year’s resolution, eating out less or coupon clipping.

If you’ve struggled, you’ve got company. One in three families surveyed said they don’t have any savings, according to a Pew Charitable Trusts report. Ten percent of families without savings make more than $100,000 annually.

Behavioral economists explore why people find saving so hard, and their studies suggest that you may be overly optimistic, overwhelmed, lacking power or in need of encouragement.

Financial institutions are particularly interested in these results to better target you as a consumer. For you, though, they provide insight into habits that could be improved.

Savings may fall short when …

… YOU ARE OVERLY OPTIMISTIC ABOUT THE FUTURE

You may delay saving because you expect a higher income in the future. A study called “Saving in Cycles: How to Get People to Save More Money” tested the impact of this optimism. It measured how the linear concept of time past, present and future affects the intention to save. The study compared the linear view of saving with the cyclical time orientation.

With linear time, past mistakes are separate from the future. So, if you aren’t saving right now, you may still be optimistic about reaching your savings goals in the future.

Cyclical time makes you aware of past mistakes because the future is believed to be determined by the past and present. In other words, it makes you aware of the impact of any decision you make now because it affects your future. Study participants who used cyclical time estimated saving more than those using the linear approach.  

The linear approach is prevalent in the U.S., while the cyclical approach is found in Hinduism and other cultures, says Utpal Dholakia, a professor of marketing at Rice University and an author of the study.

“What we are experiencing now, we are going to experience again in the future — that’s what the Hindu tradition believes,” he says.

» MORE: 10 ways to trick yourself into saving 

… OPTIONS OVERWHELM YOU

Having to make too many decisions can cause procrastination. A program called “Save More Tomorrow: Using Behavioral Economics to Increase Saving” was part of a study that examined how automatic enrollment can be used to increase retirement savings.

Automatic enrollment shortens the decision-making process — how much to save and how often, for example — because you can set your contribution once and forget it. The only drawback is that some people save less than they would if they were actively saving.

Still, the automatic process could be useful for those who are not saving at all, and it can be applied to a savings account in a bank or credit union.

It works for Duyen Vo, who works in human resources in Los Angeles. Her employer deposits a portion of her paycheck into her savings account. “The money is gone from my paycheck before I even see it. It is a good way to trick myself into saving,” she says.

» MORE: NerdWallet’s best savings accounts

… YOU FEEL POWERLESS

Your sense of power can impact how you save. A study called “Money in the Bank: Feeling Powerful Increases Saving” made different participants feel powerful or powerless by having them write down past events, imagine employee-boss scenarios, or sit in high or low positions.

In one case, university students were divided into three groups. One group wrote about feeling powerful, another about feeling powerless, and the last one didn’t write anything. They envisioned receiving 100 euros and had to decide how much of it to save. The powerful group saved a mean of 71.20 euros, the powerless group saved a mean of 48.73 euros and the last group saved 51.69 euros. Overall, the study showed that feeling powerful increases a person’s intent to save and the amount saved.

“I show that helping consumers regain control and restore their sense of power can motivate them to make better financial decisions,” says Emily Garbinsky, assistant professor of marketing at the University of Notre Dame and an author of the study.

» MORE: Saving $1,000 when you’re living paycheck to paycheck

… YOU NEED ENCOURAGEMENT

Sometimes you might need a cheerleader. A study called “Soft versus Hard Commitments” discovered that impatient people might benefit from the soft psychological pressure to save.

Participants were given $50, $100 or $500 as part of the study. Before deciding how much of it to deposit in a savings account and how much to take home, some participants received encouraging nudges.

They were asked to think about the reasons that they have to save. They also had to type one word to describe their savings goal and another word to describe how they would feel when they reached it. They then wrote, “I am a good saver. I can achieve my savings goal.”

At the end of the study, these participants deposited more of their funds than participants who didn’t receive any form of encouragement.

Change your mind, change your money

If you’ve tried many saving strategies and failed, try changing your mindset in addition to your habits. Be your own lab rat and test whether the findings of the studies make a difference in reaching your goals.

  • Save regularly and automate the process: Set aside a portion of your earnings from each paycheck before it hits your checking account.
  • Tap into your power: Save when you feel strongest, for example, when you get a raise, a promotion or recognition at work, or a leadership position outside work.
  • Write down goals or use the buddy system: Stay accountable to yourself or to a friend who can push you to save.

Look for a low-fee savings account that offers an annual percentage yield of 1% or higher. Run your own experiment and try to save your first $500 for common emergencies. Once you’re in the habit, work your way up to saving three to six months’ worth of living expenses. You might just get it right this time.

Melissa Lambarena is a staff writer at NerdWallet, a personal finance website. Email: mlambarena@nerdwallet.com. Twitter: @LissaLambarena.