That Americans don’t save enough money is a truism. But why don’t they? The answer is a complex mix of macroeconomics (incomes have stagnated for many workers over the last few decades), culture (Americans are notoriously conspicuous spenders), and policies (two-thirds of workers are at companies without retirement plans).
But another variable is the challenge of giving up the gratification of immediate spending for the security of future savings.
A new paper finds that two biases prop up many people’s disinclination to save: "present bias" and "exponential-growth bias."
Present bias is a straightforward idea. People claim they’re willing to embrace all manners of self-control—saving money, working out, cleaning their room—provided that they don’t have to do so immediately. It is like the regularly scheduled conversation I have with my dentist.
“Do you want to floss more in the coming months?” Yes.
“Do you want to floss next week?” Yes.
“So I assume you flossed yesterday.” Um.
The commonplace name for this behavior is procrastinating. But academics, ostensibly paid by the syllable, favor the terms “hyperbolic discounting” or “time-inconsistency.” The only distinction between flossing next week and flossing right now is the passage of time, and yet it makes all the difference in my attitude. Researchers in this study found the same attitudinal difference among their participants. When they asked people if they preferred $100 today, $120 in 12 months, or $144 in 24 months, they found that about half of respondents took less money if they could have it immediately.