We went camping at a beautiful spot on the river this week-end. It is a popular spot and offers opportunity for kayaking, swimming, tennis courts, putt-putt and even pool tables.
What I want to discuss this week though is not the beauty of the campsite or all the activities you can get up to, but the growing rate of pensioners who sell or rent their houses and permanently live in their caravans. Most of these people are not doing it for the joy of camping, but because they are under financial pressure and have to make the best of a bad situation. The economic circumstances in our country have really deteriorated in the last few years and for a lot of pensioners their money just don’t reach as far as it used to anymore.
All this, however, brings to mind again why it is so important to save and put money away for your old age. None of us know how long we are going to live and how healthy or sick we might end up being. The only certain thing is that if you do not save while you are young, healthy and working, then your fate might be much worse than having to live in a caravan park.
A while ago I read the book “Willpower : Rediscovering the Greatest Human Strength” by Roy F Baumeister and John Tierney and thought to share some of their insights on saving with you.
They explain why it is that some people have a greater tendency to save for their old age while others don’t see the need.
Evidently it all has to do with our impulse control and whether we are able to visualize our future self. When we’re on our best behavior humans’ ability to control their impulses put other species to shame. But all too often, we use our fancy brains not to make the most strategic decisions, but to give ourselves permission to act more irrationally thanks to our big prefrontal cortex.
A big prefrontal cortex is not only good at self-control, but can also rationalize bad decisions and promise we’ll be better and do better tomorrow. So, how do we think about the future. We can definitely foresee a future, but the problem is that we cannot see it clearly.
Economists call this “delay discounting” – the longer you have to wait for a reward, the less it is worth to you. They did this experiment with children to have 1 sweet now or 5 later and of course most of them chose the 1 sweet now. We are no different as adults. Even small delays can dramatically lower the perceived value of the reward. We therefore choose immediate satisfaction at the cost of future happiness which relates to our more primitive side. Immediate rewards bring immediate enjoyment and is higher on our enjoyment scale than future rewards.
To enable you to invest in your future self you have to get to know your future self better . Ersner-Hershfield did an experiment with avatars where he made avatars which resembled his subjects’ older selves and had them interact with those avatars. The more they got to know their future selves, the more they cared for them. This is called self-continuity.
High future-self continuity seems to propel people to be the best version of themselves now and act more responsibly. They found that people with low future-self continuity behaved less ethically in business role-play scenarios. It is as if feeling disconnected from our future selves gives us permission to ignore the consequences of our actions and make us less likely to provide for our future selves. In contrast, feeling connected to our future selves protects us from our worst impulses and will propel us to make provision for our old age.
To make wiser decisions, we need to better understand and support our future selves. And we need to remember that the future self who receives the consequences of our present self’s actions is, indeed, still us, and will very much appreciate the effort.
So, think about your older self, speak to a financial advisor or a broker and make provision for “one day” because that day will definitely come!