Monday AM August 25, 2008

image of moneyWe're better at saving money paycheck-by-paycheck, rather than setting more distant future goals, according to research from Rice University. Ed Mayberry reports.
The study asked participants to make savings estimates for next month and for a specific month in the future. In one study, those saving for next month estimated they'd save $287, but actually saved $440. Those targeting a future date thought they'd save $946, but actually managed to save only $123. Professor Paul Dholakia is with Rice University's Jones Graduate School of Management.

"What we believe is going on is a motivational issue. When people are asked to make plans for distant futures, in reality what ends up happening is people feel all optimistic. But then they are not able to accomplish their goal, and so they just sort of give up that goal and don't save as much."

Professor Dholakia says those saving for a specific month in the future not only saved less, but also made riskier financial decisions in the present.

"In one case we asked them to imagine that they had a certain amount of money — let's say $10,000 to invest. People behave in much more risky ways when they have brought us an estimate for a specific month in the future. People become much more optimistic regarding what they will be able to do financially."

Dholakia says the easiest way is to be a smart consumer and make spending and saving decisions thoughtfully on a daily basis.

Ed Mayberry, KUHF Houston Public Radio News.
Bio photo of Ed Mayberry

Ed Mayberry

Local Anchor, All Things Considered

Ed Mayberry has worked in radio since 1971, with many of those years spent on the rock 'n' roll disc jockey side of the business...