We like to think we’re in control of how to save and that we behave in a rational way. Most of us see saving as something active we can master and change if we really put our minds to it. But think about your family. Is your sister, brother or one of your parents or children a better saver than the other? Have you tried to save and failed?
According to Stanford research, we have less control over our saving habits than we believe. In a study of 15,000 twins in Sweden, the number one factor influencing our saving style is our genes. This was consistent even amongst twins who had been separated.
Proving our behavior is more influenced by genes than we may think, the research revealed that factors like parenting and life experience were far less important when it came to knowing how to save. From the ways your brain influences your saving patterns, to how you score on a personality test, we explore the factors that determine whether you are more likely to spend or save and whether you can truly ‘learn to save’.
Think of the ways you save money each month. If you’re like 39% of Australians according to iSelect research*, you might save by reducing your monthly energy use. Or you could be like 58% of Australians who stick to a monthly budget. Alternatively, you might feel like you don’t save at all and feel like you’re overspending by $100 each month. But what exactly makes some of us save and others spend?
How do you feel when you buy something? One of the biggest influences on why we save comes down to activity in the part of your brain called the insula. The insula is a part of your brain that is stimulated when you are doing something you don’t like. If the insula is activated when you’re spending, you’re more likely to stop spending. People who have more activity in their insula on the whole are more likely to be savers whereas the opposite is true when it comes to big spenders. Big spenders on average have less activity in the insula part of their brain.
It can be helpful to identify which group you fall into so you can cultivate a more balanced approach to saving. People who are experts on how to save can end up with regrets later in life, while people who spend their money without saving can face financial problems as they age.
It’s not just brain activity that influences why we save. How you rank on the big five personality traits (agreeableness, conscientiousness, neuroticism, openness, extraversion) can say a lot about whether you tend to spend or save. According to research, if you scored high on conscientiousness, you’re more likely to be a saver. Highly conscientious people are more likely to control their impulses and are more organised than their low-conscientiousness counterparts.
This was demonstrated in the ‘Marshmallow Test’, a famous experiment in the 1960s in which preschoolers were presented with a treat and told they could eat it straight away, or wait a while to double the reward.
Children who were able to control their impulses and wait until later to eat their treat (or displayed high levels of conscientiousness) were tracked into adulthood and were on average more likely to succeed financially than those who didn’t save their treat.
Proving that we’re less in control of our behaviour than we think, studies like these demonstrate the impact of traits like genetics and personality on our daily decisions.
The researchers who studied 15,000 Swedish twins on their saving behaviours, found parenting and education on how to save money did play a part in our saving styles, but not as much as we’d expect.
Parenting styles and life experience had some influence on the saving habits of young people in their twenties but by the time they hit the age of 40, these factors had zero influence on their behaviour. Instead, at the age of 40, people fell back to a more instinctive style of saving. According to researchers, this is because genes influence as much as one-third or 50% of our behaviour.
We have less influence on our saving style than we believe, but this doesn’t mean we can’t work with our natural tendencies to create better ways to save money. If you lean toward being a spender, there are a number of money saving tips you can harness to make saving more intuitive. If you’re a natural saver, now’s a good opportunity to brush up on your techniques.
For one, people are much better at saving when they are given a tangible goal. Instead of saving for a rainy day, it’s better to think of a clear financial target like a holiday or house deposit in order to get your savings back on track.
Another technique for how to save is to observe how you spend money when you’re out. If you find that you’re constantly overspending on your debit or credit card, then a good rule of thumb is to take out a limited budget in cash and leave the bank card at home. Cash is a tangible form of value which you can see decline. Alternatively, credit cards or debit cards function like ‘invisible money’, making it hard to see when you’ve spent too much.
If you still find yourself making too many impulse purchases when you’re out shopping, another option is to write a list of what you need to buy before you go out. This way you add a rational element to shopping which helps to curb emotional spending.
Finally, if you want to give yourself freedom to spend while still having something left over for a rainy day – a great money saving tip is to pay yourself first. When your paycheck comes in, automatically withdraw a portion into a savings account that you can’t access with your debit card. This way you don’t have to worry about budgeting because only your spending money is connected to your debit card.
While we have less control over our saving style than we think, there are plenty of ways to use your natural saving style to enjoy a balanced lifestyle and become an expert in how to save.