Your brain is stopping you from saving money – but technology can help
New banking technologies trump psychology, turning spenders into successful accidental savers.
Psychological traits impact saving ability, but the role they play in financial decision-making can be contradictory.
Arvid Hoffmann, professor of marketing at Adelaide Business School, says saving money and sticking to a plan requires self-control, which most people lack. However, for those who are successful, there is an additional problem of maintaining motivation.
“Psychologically speaking, once individuals make progress toward a savings goal, they get a sense of accomplishment,” says Arvid.
“[This] could give them a “license” to spend again on something they wouldn’t necessarily need, because they feel like they’ve already put in so much effort.
“The result could be that they completely lose their commitment to their savings goal and stop saving.”
Arvid says having indulged in an impulse to spend can make you feel even further away from the savings goal.
His research shows that having a clear top savings goal and remembering that goal is key. He also says it’s important to develop a good habit of saving from an early age.
“To make saving feel like something you just made and…it doesn’t feel like a decision you have to actively invest willpower in,” he says.
He says using fintech can also help.
“The beauty of fintech, like app rounding, is that you save money without having to invest the willpower or self-control that is usually required.
“Once you configure your application, the registration becomes invisible and no longer requires an active decision on your part.”
The idea of micro-savings goes back to the coin jar that many adults kept in years past – setting aside small change for a special purchase or an emergency fund.
While many banking apps include micro-savings functionality, rounding seems more popular with young people.
Courtney, 33, discovered the Roundup feature on her Credit Union SA app when a notification popped up about new features.
While she says she’s ‘not bad with money’, it’s the small size of the transfers that appealed to her.
“Sometimes the savings get you down when you see big chunks of money coming out.”
Having spent her twenties doing “a lot of traveling”, the pandemic has put a damper on that and has seen Courtney reevaluate her priorities. She is now saving for a house deposit, and a big part of keeping her savings on track is using her Credit Union SA to gather money for unexpected expenses.
“I guess I use it as an emergency fund, which means my main savings aren’t looted when these things come up,” Courtney explains.
“If I don’t have an emergency…then I can put it in my [deposit] savings. So that’s just a bonus to my biggest savings plan.
So far, she’s saved an additional $1,200 in two years simply by rounding up transactions and steadily accumulating the nest egg in her Credit Union SA bonus savings account.
“It gets to a point where you have a few hundred sitting in your rounded up account, and then you can transfer that into your main savings,” Courtney explains. “And it automatically goes into the background – you’re not even really aware that it’s saving you.”
She says her commitment to saving is paying off and putting down a down payment on a house is within reach.
“It’s on the cards, I’d say probably like maybe a year,” she says.
Arvid says the value of using an app is that it reduces active decision-making, especially when motivation wanes.
“That’s when the inertia really starts to help consumers. Since most people don’t bother to stop using the app, they save money without having to invest a lot of effort.”
This article is intended to provide general information only and has been prepared without regard to the personal financial situation, goals or needs of the reader. Before acting on this information, you must evaluate its appropriateness, having regard to your objectives, your financial situation and your needs. This product is issued by Credit Union SA, ABN 36 087 651 232, AFSL/Australian Credit License Number 241066