Researchers at Stanford believe that the reason so many 20 and 30 somethings don’t save enough during their valuable investing years is that they actually think their future self is a whole other person than the self they are today.
The trick to making us save more, then, is showing us a digitally altered version of ourselves that’s just recognizable enough to shock us into saving more and spending less. Apparently research proves that this works, to an extent.
In one experiment, young people who saw their elderly avatars reported they would save twice as much as those who didn’t. In another, students averaging 21 years of age viewed avatars of themselves that smiled when they saved more and frowned when they saved less. Those whose avatars were morphed to retirement age said they would save 30% more than those whose avatars weren’t aged.
My question is, how fast will these 20-somethings forget how they looked all wrinkled and grey, and return to their spend, not save, philosophy and reality? Hopefully there is some long-term truth to this study, and it can be used to help people my age save more versus waiting until it’s too late to build up a reasonable nest egg for retirement outside of a cushy mid-six figure corporate job.
Here’s a shocking stat — according to the Center for Retirement Research at Boston College, 51% of American households are at risk of being unable to maintain their standard of living in retirement, up from 43% in 2004. The center estimates that savings shortfall at $4.2 trillion, or roughly $120,000 per household at risk.
In my 20s now, even though I’ve managed to convince myself to save, and save quite a bit, it’s more for my “40 something self” and “50 something self” than that pruned up old lady I’ll be one day. I do see my 40-something self with kids in their early teenage years, wanting to take some time off from full time work to have meaningful relationships with my children. So I save. Most people, however, aren’t even thinking of themselves in their 40s. They are only thinking of themselves now, or at best, over the coming vacation season.
Another shocking stat: a 2008 study showed that one in five older people who said they were contributing to a 401(k) or other retirement plan weren’t putting any money in; the typical employee overestimated how much he was contributing by 79% (reporting $2,328 a year, versus the actual amount of $1,300). That’s really not good when our retirements depend on 401ks now that pensions are ancient artifacts of a financial era gone by.