Is Saving Money Part of Your Lifestyle?
New research finds having a personal saving orientation has many benefits
Posted Jan 19, 2016
“We shall drink water and walk slow.” – Muriel Spark in The Prime of Miss Jean Brody
Saving money consistently is a challenge for many people. As I wrote recently on this blog, setting a saving goal―whether it’s a few hundred dollars for a summer vacation or a large lump sum for a life-changing down payment on a new home―isn’t always effective. What is more, studies have shown that even after controlling for level of income, people still differ in their success (or lack thereof) at saving money steadily. This was illustrated memorably in the late Dr. Thomas Stanley’s research on American millionaires. Participants of his studies had amassed over a million dollars (and often a lot more), but many of them had relatively small and below-average incomes. Some millionaires owned small businesses; others were high-school teachers or blue collar workers. They became wealthy by saving week after week, month after month, over long periods of time and letting their savings grow. Saving money was a part of their lifestyle.
The fact is that just like some people have no trouble with maintaining their health (by following a routine of healthy behaviors such as eating moderately and exercising, and staying away from clearly unhealthy activities such as smoking or heavy drinking), some people are better than others at making saving money a part of their lifestyle, no matter how much money they make.
In a recent paper titled “The Ant and the Grasshopper: Understanding Personal Saving Orientation of Consumers” that can be downloaded here, my coauthors Leona Tam, Sunyee Yoon, Nancy Wong and I advanced the idea that the difference in consistent saving is a personality characteristic of people. We call it the “Personal Saving Orientation” or PSO for short. We argued that every individual has a chronic level of PSO, and found that higher PSO confers significant benefits.
What is a Personal Saving Orientation?
This is how we defined Personal Saving Orientation. It is an individual difference supporting a constellation of activities to save money, some of which are habitual and routinized, while others are opportunistic and intentional, that the individual performs on a consistent basis and incorporates into his or her lifestyle. So instead of conceiving of saving money strictly as the setting and reaching of a series of goals, we described it as a “motivational tendency” that is based on a combination of focused goal-setting and a variety of routinized activities; in other words, as a lifestyle. (Social psychologist Julius Kuhl developed his Action Control Theory in the 1980s in which he described how a motivational tendency is formed, its workings, and how it influences behavior. We used his ideas as the basis for the Personal Saving Orientation concept).
We also developed the PSO scale to measure an individual’s level of Personal Saving Orientation. Starting with 120+ items and reducing and testing their properties in a series of psychometric studies, our final PSO scale has nine statements representing the set of behaviors that individuals need to cultivate and sustain in order to save money successfully. You can indicate your agreement with each statement on a 7-point scale where 1 = “I disagree completely” and 7 = “I agree completely”:
- I keep a careful watch over my spending on a daily basis.
- I do not spend money thoughtlessly, I would rather save it for a rainy day.
- Putting money into personal savings is a habit for me.
- I actively consider the steps I need to take to achieve my personal savings goals.
- I like to discuss the topic of saving money with my family and friends
- I usually save money without having a specific goal in mind.
- The goal of saving money is always at the back of my mind.
- Saving money on a regular basis should be an important part of one’s life.
- Saving money is like a lifestyle, you have to keep at it.
Take a moment, take the PSO test, and calculate your score. High scores are 50 points or more (you would be in the top 25% of respondents in most of our studies with this score), while low scores are those below 35 (the bottom 25%).
What Are the Benefits of a Personal Saving Orientation?
In all, we conducted a total of 19 studies for this project involving thousands of consumers to examine how the Personal Saving Orientation affects different financial outcomes. We found that high-PSO consumers:
- Save a greater percentage of their income regularly
- Put away more of any windfall they earn (for instance, a tax refund) into savings instead of spending it on luxuries or even necessities
- Have more liquid cash in their bank accounts
- Have more investments in stocks and bonds
- Have less credit card debt
- Are more likely to have a fund for emergencies
- Use credit cards more prudently (they pay off their balances each month, use a fraction of their total credit limit, and so on)
- Are more patient and able to delay gratification
- Are less likely to act on an impulse to buy something in an unplanned fashion (even when they are naturally impulsive shoppers)
- Are better able to utilize factual knowledge about how personal finances work for their benefit (The topic of financial literacy and how it affects financial behaviors is a fascinating one; I will write about this in a future post).
Perhaps most importantly of all, high-PSO consumers possess greater financial well-being, the equivalent of “money happiness.” They experience lower levels of stress about finances, they report being more satisfied with their current financial situation, and they make their decisions about whether to buy or experience something based on whether they want it rather than whether they can afford to. Simply speaking, they have greater control over their consumption decisions.
What is the main lesson of this research? Rather than thinking of saving money as a goal to be reached or as a task to be deferred to the future, it is useful to think of saving money as a lifestyle that covers a broad set of contributory activities to be undertaken on a regular basis. One implication is that we can be more forgiving of ourselves. If a certain virtuous saving behavior is hard to pull off―say, someone loves to splurge regularly on new fashions―there are many other behaviors that may substitute in its stead. The fashion lover may find it easier to cook and eat at home more often, or cut the cord on pricey cable television. Making money saving a part of one’s lifestyle has broad-based psychological and tangible benefits.