Blame the Brain

For a glimpse into my own brain, I share with you that the original title of this was going to be “Blame Your Brain” or “Blame Our Brains,” but I did not want to offend anybody by insinuating that there is anything wrong with your brain.  While I know there are some things wrong with my own, for all I know, you possess a perfectly functioning brain and can understand and retain complex issues with ease.

Saving versus spending can be made into a complex issues, although it is really not.  When you earn or are given money, you can either save it, spend it or do what I do and you most likely do as well, some combination of saving and spending.

It piqued my own brain’s interest last week when I heard a radio segment about a paper titled “Differential temporal salience of earning and saving” in Nature Communications.

I listened to the radio segment with great interest and then later, as I often do, I did a little Internet research on the topic and even read the most of the, well, some of the study, itself.

If you want to really know why so many of us Americans are notoriously poor at saving money, consider this chart:

Or this one:

There.  Now you understand it and can move on.

Hardly.

Despite having taken graduate level statistics courses and numerous social science courses in my undergrad days that made ample use of statistical charts, it was hard to make heads or tails out of these and several other graphs and charts showing the correlation between the amount of money earned verses saved.

The study made use of various stimuli, color-valued associations, temporal-order judgement, monetary reinforcement tasks, behavioral and attentional salience for earning and saving, plus lots of other good stuff.

But if you wanted to read all that stuff, thus straining your brain more than you or I would want to, I can share with you that it all boils down to our brains.  Or “the brain.”

According to co-author Adam Anderson, “Fundamentally it comes down to this: saving is less valuable to our brains, which devote less attentional resources to it.”

So there you have it.  Blame it on the brain.

The study concludes that savings is treated as something to be concerned about at a later time, biased by our brains as having less temporal priority.  Since we must earn money and take care of our needs and, of course, our wants, our brains may blind us to opportunities to save in a way that fundamentally distorts our perceptions.

I could regale you with examples of people who I know, some of whom I am very close with, who make good money and are highly driven to earn more yet do not spend many, if any, brain cells on setting something aside for the future.

We all have bills to pay, food to buy, gasoline to feed our vehicles, vacations to take and many expenses that come with modern life here in America or anywhere.

Let’s keep in mind that millions of people throughout our country and the world do not have the luxury of setting money aside for retirement and are simply focused on putting food in their mouths and drinking clean water if they can.

According to a much-cited 2016 analysis of the Federal Reserve’s 2013 survey of consumer finances, the median American working-age couple has saved only $5,000 for retirement with 43% estimated to have no retirement savings at all.

Blaming it on all of their brains would be very inaccurate, since many of those people, perhaps millions, have lost jobs, lost homes due to foreclosure and/or may have suffered health-related problems that caused them to be unable to save.

However, the flipside of that coin is the many families who earn in the six figures and above who spend everything that comes in on luxury homes, vehicles, clothes, electronic gadgets, meals out, vacations and second homes.  I know several folks in this category who live enviable lifestyles, yet have not yet gotten around to stashing some money away for a rainy day.

The study defines one meaning of “to save” as avoiding loss.  Saving may represent an aversion to losing one’s earnings.  There are evident asymmetries in the weight we place on gains and losses, with potential losses having an incommensurate influence when people evaluate identical outcomes.

I, myself, your humble wannabe Mensch, is struggling a bit from this at present.  I just cashed out over twenty thousand dollars’ worth of a fund that I am throwing the towel in for (T. Rowe Price GNMA fund), which should merit a short post on its own, and I am somewhat reluctant to reinvest it into a fund that I have read about and coveted for over the past two years, the T. Rowe Price Dividend Growth fund.

Neither this post nor this blog is meant to provide specific investing advice, just the general advice that I and hundreds of others give over and over again.  That being to Pay Yourself First, to earn more and to spend less.  Perhaps my eBook title should be simply, The Money Mensch Guide to Earning More, Spending Less and Paying Yourself First.  Now all I have to do is write it.

Anyway, as I read and chat about the Next Recession frequently, I hesitate to reinvest in anything right now.  I suppose that I will look back on this post a few years from now, wishing that I could know now what you and I will know by then.

One thing that I do know now is that, like the subjects in the study, I have a strong aversion to losses which may cause me to miss out on some much-needed gains.  As the study notes, “losses are punishing, resulting in an exaggerated avoidance response, biasing both decisions and the amount of attention devoted to them.”

While the act of avoiding loss is the removal of punishment, which to me losing money is a form of, the motivation to earn may, more directly, be a comparison of positive and negative variants of reinforcement.

As a cave man might summarize, “Losing money: Bad!  Earning more money: Good!”

The way I think of it in my own brain more closely reflects the way a cave man would think about it than the chart below:

Have you or someone you know struggled with the concept of saving money?

If so, next time you are thinking about it in your own brain, just let them know that it is not their fault.

Blame it on their brain.