You’re saving too much…said no financial expert ever. It’s America Saves Week, which is all about saving more. If you’re in your twenties, you’ll be told to save ten to 15 percent of your income. Older? You’ll be advised to save 20-30 percent or more! At the same time, one-third of Americans have saved precisely zero for retirement and the the average savings rate in the US has declined to an 10 year lows of just 2.4 percent.
Bear with me while I address that elephant in the room: could the experts be wrong?
If only for a moment, let’s consider some arguments for saving less:
- Preference reasons: Some people will prefer to spend $1 today even it could turn into $2 or $3 of consumption in the far future. Financial professionals call this a high (or hyperbolic) discount rate. But it could be a legitimate preference that I would rather enjoy my dollars when young even if it meant lean times later on. Low expected returns on investment make the trade-off less expensive.
- Empathy reasons: It’s hard to care about my future self because I might consider him to be an entirely different person–a stranger, even. While we may share some memories, beliefs, preferences and a few cells, who can say how much of these we will share? In addition, American culture fetishizes youth; imagining myself as old is just unpleasant.
- It’s hard work: Saving requires self-control to resist the pressures of marketing messages, peer pressure and desire for immediate gratification. It requires time and education to know how to save right. Many businesses don’t have a retirement plan, which makes it even less convenient to save.
- Practical reasons: For many, saving seems like an unaffordable luxury. Even when they do make an effort to save, emergencies come up that thwart those efforts.
- I can rely on others to help: I like to joke with my son, Jay, that part of my retirement strategy is to rely on my 401(J) plan. Perhaps I will be able to count on the government and my family to ensure that my basic needs are met when I can no longer work.
- I’ll just keep working: (as long as I can…)
- Moral reasons: One way to make moral decisions is to compare the costs and benefits, as they affect myself and others. I may reasonably find that there are just better consequences to spending more and saving less.
Before we cash out our retirement savings and go on a fabulous vacation, let’s revisit these arguments critically:
- Practical reasons: Unexpected expenses will happen for everybody at some point. Without an emergency fund, many will have to pay higher fees and interest costs, and experience greater uncertainty and anxiety. Saving to build a rainy day fund can prevent all that. And, once the fund is full, it will be easier to continue saving for retirement and other goals.
- Preference reasons: While it can be a legitimate choice to accept poverty late in life in return for more fun today, our busy lives and marketing messages may make it hard to mindfully select this trade-off with a full appreciation of the consequences. For many, objective and thoughtful consideration will reveal a preference for more sustainable spending and savings behaviors.
- Empathy reasons: We naturally feel more empathy for people we are closely related to than to strangers. Of course, there’s no one we are more closely related to than our future self! Both the Decision Fish app and workshop get people to visualize their future selves to build empathy and understanding, so they can make a more mindful saving decision. (More than 90 percent increase their savings intentions as a result.)
- It’s hard work: True, but technology and building good habits can help with saving. Online tools like ours can make it easier to think about and plan for the future, get control of our spending and build financial resilience.
- Relying on others: Relying on Social Security alone is a guarantee of poverty: the average benefit is only $1,413 per month, just a shade above the federal poverty line. In addition, the program is forecast to run out by 2034, which could lead to cuts in even these meager benefits. One has to choose whether to plan to rely on family or start saving now, so that rather than being a burden, you may even be able to provide support for children and grandchildren.
- I’ll just keep working: This is risky. Most Americans actually retire by age 63. Poor health of the worker or the spouse and lack of employment opportunities can force some people to retire before they’re ready.
- Moral reasons: Some may consider it a moral obligation to save. Frugality, moderation and self-reliance are classic American virtues. In addition, saving and taking care of one’s future self would be an excellent universal law while respecting the rights and dignity of our future selves.
Of course, the decision of how much to save and when is personal. It’s not necessarily bad to save less than what experts recommend. However, it’s a decision that can have grave consequences for oneself and society at large. So, it requires careful, mindful and honest consideration of practicalities, preferences, empathy and obligations to one’s self and others. We think that such considerations motivate people to save more rather than less. However, advisers, bloggers (and fintech entrepreneurs!) need to respect the savings decisions that people make!
Note: this is the first in of a three-part series of financial wellness articles that describe the philosophy behind the Decision Fish App and Workshops. Next up: Beat the Budgeting Blues and Make Your Money Make More Money.
Decision Fish is building a fun, online financial wellness program. We are looking for people willing to try it out early, even before it’s available to the public. Do you want some informal financial coaching yourself or work at a company that still doesn’t offer a financial wellness benefit? Let us know!