Joyous! (CC BY-SA 3.0)
Source: Joyous! (CC BY-SA 3.0)

About five years ago, Nobel laureate Daniel Kahneman published a research paper pointing out t something most of us have suspected:  being rich won't make us happier persons. Roughly, above  a household annual income of $75,000 money stops affecting our mental wellbeing.  But Kahneman also showed in the same study that lacking the income for those expenses we doom essential to our life can make us quite miserable. The  important implication of Kahneman' s study is that for most of us, money can affect our happiness to the degree that we manage it correctly.

Managing our finances starts with managing our spending. This is a tough task, not because it requires complicated math, but because our desires, cravings and emotions are not always aligned with our financial interests and our long–term wellbeing.   

In 2014, the Wall Street Journal reported on the alarming saving habits of the millennial generation:  "Adults under age 35 currently have a savings rate of negative 2%"

A low rate of saving does not only mean that our retirement life will look grimmer than that of our parents. It also means that we would lack assets to buffer ourselves against unexpected shocks, such as unemployment, health problems or a sudden jump in real estate prices.

To be able to spend less and save more, millennials would need help. They would need behavioral tools that protect them against sophisticated marketing tricks that are waiting for them out there in the commerce world compelling them to spend money on stuff that they  don't really need.  They would need a behavioral technology that provides  them with ideas and suggestions on how to  manage their spending. Suggestion that arrive in real time right before the decisions are made. A technology that would make millennials—and all of us—behave more responsibly with our finances.

The matter is so important that a product is currently being developed to address it:   https://gochange.co/  Change Labs is developing a behavioral smart phone– based software that aims at changing spending behaviors.  (Full disclosure: I  am serving as a behavioral advisor on Change.) The technology analyses the financial transactions of its users, studies their behavioral patterns, and identifies opportunities to reduce spending and increase saving. It then suggests simple ways to act upon them based on scientifically documented behavioral insights. This is just one of many ways technology can be used  to help make us smarter and more responsible spenders in  the future.

Image: Ceramic piggy bank by Joyous! is licensed under CC BY-SA 3.0.

About the Author

Eyal Winter

Eyal Winter, Ph.D., is a professor of economics at the Hebrew University and the author of Feeling Smart: Why Our Emotions Are More Rational Than We Think.

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