How Behavioural Economics Can Help You Save Money

Why We Struggle to Save: The Behavioural Barriers 

Saving consistently is one of the simplest financial habits to recommend and one of the hardest to actually practise. Behavioural economics offers a clear explanation: our decisions are not driven by pure rationality but by predictable mental shortcuts that push us toward immediate comfort over long-term benefit. Two of these biases do most of the damage to our saving habits. 

We all know saving money for the future is important, but it can be challenging when our brains are hard-wired to focus on the present pleasure rather than the future benefits. In Behavioural Science, this bias is known as Hyperbolic Discounting, which refers to the tendency for people to choose smaller-sooner rewards in the present rather than larger-later rewards in the future. In other words, “Pleasure now, pain later.” This partially explains why credit cards can cause us so much trouble. 

Another obstacle we face is the Current Moment Bias, which refers to the idea that humans have a hard time imagining ourselves in the future (making it difficult to alter our behaviour to get us to where we want to be). 

Don’t fret – there are ways to overcome these challenges as outlined in a recent article. We will discuss two examples.

Key takeaways 

• Two biases – hyperbolic discounting and current moment bias – explain most of why saving consistently is so hard. 

• Making saving the automatic default, not an active choice, is one of the most reliable ways to raise participation. 

• Imagining a vivid future self can double how much people choose to save. 

• The same default-option logic explains why Singapore’s opt-out organ donation policy achieves high participation. 

Two Evidence-Backed Nudges That Make Saving Easier 

1. Make saving easy / Make it the default option. Set up your accounts to automatically make deposits into your savings accounts or pension. Human beings are generally lazy when it comes to making decisions and tend to go with the default option. If automatic deposits into savings are the default, you have to actively make a choice against the default, which requires more effort. A Harvard behavioural economist found that when companies automatically enrol their employees in their retirement savings program, 90% of them stick with it! 

2. Imagine your future self! Think about where you want to be 10, 20, or 30 years in the future. What kind of career do you want? Where do you want to live? Research has demonstrated that just imagining your future self can help you become better at saving. In a study conducted at Stanford University, researchers assigned groups of students different avatars. In one of these groups, the avatars were 70-year-old versions of the students. After interacting with their avatars, students were asked what they would do with $1,000. The students who had interacted with the 70-year-old versions of themselves said they would save twice as much compared to the group of students who interacted with avatars that were the same age! 

The Research Behind These Nudges

These two nudges are not just clever marketing ideas, they are backed by some of the most cited studies in behavioural economics. Analysis of retirement plan enrolment data from several large US companies found that switching from an opt-in to an opt-out default sharply increased participation, echoing the same automatic enrolment effect described above⁴. A related study tested this directly: participants who interacted with age-progressed, computer-generated renderings of their own future selves subsequently allocated more of a hypothetical windfall to a long-term savings account than participants who saw an unaltered image of themselves, closely matching the Stanford avatar study described above¹. Underneath both findings sits the same pattern referenced earlier in this article: hyperbolic discounting, the tendency to value a smaller reward now far more than a larger reward later, a pattern first formalised in the economics literature³. 

A Default-Option Example from Singapore Healthcare 

The same default-option logic extends well beyond personal finance and shapes outcomes in healthcare policy across the region. A comparison of organ donation rates across countries found that nations using an opt-out system, where citizens are presumed to consent unless they actively withdraw, had dramatically higher donor participation than countries relying on an opt-in system². Singapore applies this same principle through its Human Organ Transplant Act, which presumes consent for organ donation for citizens and permanent residents aged 21 and above unless they choose to opt out⁵. For healthcare marketers, the parallel to the savings examples above is direct: the biggest gains in participation rarely come from persuading people harder, they come from redesigning the default choice itself. 

Frequently Asked Questions 

What is hyperbolic discounting? 

The tendency for people to choose smaller-sooner rewards in the present rather than larger-later rewards in the future – “pleasure now, pain later.” 

Why does making saving the default option work so well? 

Because people are generally lazy when it comes to making decisions and tend to go with whatever is already set up for them. Switching retirement savings from opt-in to opt-out sharply increased participation in large US companies⁴. 

Does this apply outside of personal finance? 

Yes – Singapore’s Human Organ Transplant Act uses the same opt-out logic, presuming consent for organ donation unless a person actively withdraws⁵. 

What This Means for Marketers 

So what does this mean for marketers? When designing things such as loyalty programs, services, or patient support groups, make it easy for customers or patients to buy and use your product. Favourable outcomes are more likely when your product or service is the default choice! When it comes to financial planning or even preventative medicine, help customers and patients imagine their future and position your service or product as a means to getting there! 

DeltaMV helps financial services and healthcare brands apply behavioural science, from default design to message framing, to turn good intentions into consistent customer action. 

Talk to our team about designing defaults and nudges that drive real behaviour change: Healthcare Behavioural Strategy. 

Sources 

1. Hershfield, H. E., Goldstein, D. G., Sharpe, W. F., Fox, J., Yeykelis, L., Carstensen, L. L., & Bailenson, J. N. (2011). Increasing saving behavior through age-progressed renderings of the future self. Journal of Marketing Research, 48(SPL), S23–S37. https://doi.org/10.1509/jmkr.48.SPL.S23 

2. Johnson, E. J., & Goldstein, D. (2003). Do defaults save lives? Science, 302(5649), 1338–1339. https://doi.org/10.1126/science.1091721 

3. Laibson, D. (1997). Golden eggs and hyperbolic discounting. Quarterly Journal of Economics, 112(2), 443–477. https://doi.org/10.1162/003355397555253 

4. Madrian, B. C., & Shea, D. F. (2001). The power of suggestion: Inertia in 401(k) participation and savings behavior. Quarterly Journal of Economics, 116(4), 1149–1187. https://doi.org/10.1162/003355301753265543 

5. Ministry of Health, Singapore. (2024). Organ donation: Human Organ Transplant Act (HOTA). https://www.moh.gov.sg/seeking-healthcare/organ-donation