It is common knowledge that Americans don’t save. Instead, they spend every penny they can get their hands on and more. Personal debt is at record levels and the US current-account deficit has become one of the most discussed subjects in the economic world. But we rarely ask why it is that Americans won’t save money. They know, just as we all do, that if they don’t save they’re going to have horrible retirements, and they know that those retirements are getting closer and closer. But will they put a penny away? They will not. A recent survey of workers done by the University of Pennsylvania found that while 68% of people admitted to saving too little, only 24% said they intended to save more, and only 3% actually did so within four months.
So what’s going on? Nothing that hasn’t gone on for ever, according to The New York Times. A new piece of research out from Princeton’s Centre for the study of the brain shows that we are hardwired to procrastinate. Decisions are made in two areas of the brain. The first is the lateral prefrontal cortex, a sophisticated system that evaluates trade-offs between abstract rewards. The second is the more primitive limbic system, which is designed to respond to immediate stimuli, and it is this that we use when making our immediate decisions. Unfortunately, this more primitive brain system is prone to giving the immediate future more weight than it is rationally due. The result? The prefrontal cortex tells us to save so we can spend our retirements yachting around the Bahamas, but when the time comes to actually do it, the limbic system tells us to buy a nice pair of shoes instead.
This sounds like self-justifying clap trap. And it probably is. Let’s not forget that there was a day when America was perfectly capable of saving money. And let’s not forget that much of the rest of the world manages it perfectly well too (I’m assuming here that the research is not suggesting that only Americans have a primitive limbic system). I think that we do procrastinate when it comes to making big financial decisions, but for modern, not primitive reasons.
Regular readers will remember that I promised in print a good six months ago that I was just about to set up a self-invested personal pension (Sipp). I haven’t. It isn’t that I don’t mean to. There is always something I have to do before I make the call. There are 368 unanswered emails in my inbox, for example. Dealing with these before I get a pension reflects less a kind of genetic apathy than the fact that modern life is so full of distracting little tasks, such as answering them, that it is hard to get anything important done at all