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Retirement Planning > Saving for Retirement

Does Americans' Keen Focus on Earning Hurt Saving?

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What is it about humans that makes saving so hard? Is it some innate gene that despite education and opportunity, still makes it difficult? Americans tend to save like the fabled grasshopper — that is to say, little to nothing — and a reason may be our focus on earning, according to a new study from Cornell University.

In fact, according to an analysis of a Federal Reserve 2013 survey of consumer finances, the median American working-age couple has saved about $5,000 for retirement, with 43% of working-age families estimated to have no savings at all. More recent studies have echoed this finding, and even show lower median savings. Further, savings of disposable personal income have dropped to less than 3%. As authors Kesong Hu, Eve De Rosa and Adam K. Anderson state, “Contrasting with a near 96% employment rate, we have ant-like work ethic, yet earnings are rarely converted into savings.”

To determine why, the study examined “how earning and saving, according to different models, regulate the paying of attention. If earning and saving represent differential concerns to the individual, then this should be reflected in attentional choice, having an asymmetric regulatory influence on salience [prominence] and awareness.”

The first of two models studied looked at earning and saving after positive and negative reinforcement, that is, gains versus avoiding losses. The second model studied earning and saving as variants of positive reinforcement in which gains accumulated at the same rate, but differ according to a time received, i.e. immediate gain or a “short time later.”

Some findings of the study were:

  • “Poor saving behavior suggests loss aversion is likely not at work in limited savings. One must be motivated to accrue savings before being concerned about losing them.”
  • Individuals focus on more immediate events and outcomes than those in distant future. Therefore, savings took a second place to earnings. “The temporal priority for earning over savings persisted when earning and saving were both modeled after positive reinforcement but framed as gains now or in the near future.”
  • According to the authors, while reinforcement did speed up action, it also “strengthened attention to bias temporal perceptions.” Therefore, relative to earning, saving not only had decreased behavioral responsiveness, but also decreased attentional prominence. As the authors note, “This asymmetric ‘gain approach’ in attention to earnings, relative to savings, is potent enough to subjectively distort objective temporal reality, and potentially one’s bank account.”
  • Across their studies, the authors found that “positive reinforcement received attentional priority.”

Bottom line: Earnings bias takes precedence over savings bias and can distort our loss aversion. The findings indicate, however, that bias is learned rather than innate, and perhaps gives us hope of improving our chances to save.

“Whether resulting from variants of reinforcement or temporal perspective, earning and saving are subject to a basic asymmetry in attentional choice,” the authors conclude. “While decreased attention to saving appears fundamental, present under a variety of conditions, it is nevertheless malleable.”


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