Moneyzine.com talks exclusively to Hal Hershfield, a researcher and Associate Professor of Marketing, Behavioural Decision Making, and Psychology at UCLA’s Anderson School of Management.
His research sits at the intersection of psychology and economics – examining the ways in which people consider their future selves, and how it can impact financial decision-making over time.
In the interview, we covered what urged Hal to study saving behaviour, technological advances that obscure our long-term decision-making skills, and practical tips to develop healthy saving habits.
*The interview has been condensed and edited for brevity and clarity, without compromising the core information shared by the interviewee, focusing on key insights.
What inspired you to study savings behaviour, and what have you learned from your research so far?
In 2008/2009, I was fascinated by decisions that everyday Americans were making with regard to their mortgages – often taking on too much risk. There are a number of factors involved in such decisions, but I was curious why it’s sometimes easy to ignore future consequences in favour of present-day rewards.
One aspect, of course, is our upbringing and what was modelled for us. But, the relationships we have with our future selves also matter. People differ on this dimension, with some feeling a stronger degree of emotional connection to their future selves, and others, a weaker one. The stronger the connection, the higher the likelihood that people have to save and accumulate assets.
One practical strategy [to achieve this] is to write a letter to and then from your future self. Futureme.org is a great place to get started.
Saving levels are fairly low at the moment, and individuals are cutting back less on non-essential spending despite the soaring inflation.
There are most likely a number of factors that could explain this trend. One salient one could be a worry about the certainty of future income. I would hesitate to make too much of this trend, though, until we see how long it lasts.
Can technological advances that facilitate certain financial activities encourage impulsive decision-making?
BNPL schemes, for example, run the risk of convincing consumers that they can afford more than they actually can. If used for one big purchase, BNPL schemes can help spread out costs over time. Problems arise when consumers use for multiple large expenses, and suddenly find themselves with unmanageable monthly bills.
[When it comes to investing], although Robinhood and other sites should be commended for democratizing investing, I worry that easy access to round-the-clock trading might cause some consumers to view trades in too myopic of a fashion.
What advice would you give to individuals who are just starting to save for long-term financial goals?
Make it automatic! It may seem impossible to start saving, but starting small can help. Don’t try to go from being a non-saver to saving everything overnight. Rather, start with a small portion from your paycheck, and if possible, set up an automatic transfer so that every time you get paid, a portion goes into a long-term savings account. Put in a reminder for yourself to gradually increase that amount in, say, 6 months’ time.
Fintech, app-based banks, for example, provide a space where different nudges and boosts can be put into place to effectively help people save more.
What resources do you recommend for people who want to improve their saving habits?
I of course have to recommend my new book, Your Future Self, which recently came out in the UK! I’d also recommend The Psychology of Money, by Morgan Housel.
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