Adjustments to counter optimism bias are now factored in budgets of most government projects . The same logic can be applied to our predictions on how long we will work. If we estimate to retire at 67, rather take 3 years off and then base your calculations on that. According to Aegon, even a simple written saving plan goes a long way toward increasing our savings and those with a written retirement strategy are more likely to turn their intentions into actions. The research also establishes that the ones with a written saving strategy have on average much higher saving rates than those without it.
The role of technology
For the more tech-savvy, there is now an abundance of new mobile apps that help us save and manage our money by combining behavioral economics and the latest technology to reach our optimistic life goals without breaking the bank.
Acorns app has some smart behavioral science behind it – one feature known as “round-ups” automatically saves and invests your spare change by rounding up purchases to the next dollar and putting the extra change into an investment account. By doing that automatically without any mental effort people save and invest their spare change. Shlomo Benartzi, who is professor at the UCLA Anderson School of Management and co-author with Richard Thaler of the famous retirement savings program Save More Tomorrow, joined Acorns late last year as a senior academic advisor and behavioral economics committee chair. He now runs behavioral experiments to incentivize Acorns more than 4 million users to save and invest more.
His first experiment focused on whether framing savings in more granular formats – saving daily versus monthly, can encourage increased saving behavior. He asked one simple question in three different ways: Would you like to save $5 every day, $35 a week or $150 a month? Even though the total amount set aside is the same, only 7% opted to save $150 a month, compared to 30% who decided to save $5 a day.
The experiment revealed the power of framing, which is a well-known concept in behavioral economics, and in the experiment framing deposits in daily amounts as opposed to monthly, quadrupled the number of savers thus showing how a small tweak in language can convince users to save more. The reason behind it is according to Benartzi that smaller, more granular amounts, seem psychologically less painful and more feasible than larger, less granular amounts, so framing recurring deposits in terms of smaller, daily deposits should be more appealing to users across the income spectrum .
Qapital app also has some smart features that explore our behavioral biases to increase saving instead of reducing it. The app, which brought on Dan Ariely, a professor of psychology and behavioral economics at Duke, as its chief behavioral officer, gamifies spending behavior by creating fun saving rules and giving users positive visual feedback along the way. The apps goal, is according to it`s Swedish founder and CEO George Friedman, to make saving more automated and personalized.
By making saving more visual and connected to our daily life it increases our commitment towards saving goals and they found users who integrated custom saving rules, i.e. you could save a set amount every time the temperature dips below freezing, and put it towards a goal for a warm vacation, which is represented in your app by a nice picture of your future trip, saved many times more than users without custom saving rules.
Behavioral science also backs this up and as mentioned earlier in this article on the case of optimism bias, it has been demonstrated in numerous studies that our brain encodes future desirable information in a more amplified way  and we tend to experience more intense emotions about future events than those in the past. That is because in general, we have an expectation that future events will make us feel more emotional than already passed events. Additionally, we are also more likely to talk about how excited we are about something we have planned in the future compared to something we have already done . Positive future events according to a recent fMRI Study activate part of our prefrontal cortex that give us a general sense of well-being thus confirming the theory that the mere anticipation of future holiday or some other positive event make us feel good, which brings great benefits to our well-being and mental health .
The future self as a stranger
Research by Hal Hershfield and his colleagues also provides interesting insight on how we can use advanced visualizations—digital avatars of ourselves at older ages to increase connection with one`s future self and by doing that increasing our willingness to save for our pension. In a study they ran fMRI scans on participants and found that the neural patterns seen, when people described themselves 10 years in the future, were different from those when they described their current selves.
In fact they were more similar to when people described strangers, showing a disconnect people feel with their future selves. That has a negative impact on their willingness to save because their brain does not feel that they will in fact be the ones receiving the rewards of those savings, but a stranger.
Would you save money for a stranger? The answer is likely to be no. To change this behavior they experimented by showing participants digital avatars of themselves at older ages and then asked them to allocate $1,000 between four options: buying something nice for someone special, investing in a retirement fund, planning a fun event, or putting money into a checking account. The ones exposed to aged avatars put almost twice as much money into the retirement fund as the other participants.
To get ourselves out of this retirement savings crisis, we have to harness our optimism for the future towards clear visual goals that motivate and drive us (buying our dream home or travelling to Tuscany in retirement) and then let technology help us reach those goals as effortlessly as possible. In this way we should encourage people to focus on their future goals, write them down on paper or in a saving app, and provide simple tools, like the before mentioned apps, to automatically follow through on them, harnessing our optimism for the future for our own benefit. This way the glass will really be half full in the end.
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