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How good or good are you to save?
It is estimated that most people need the equivalent of about 70% of their income to be able to survive once they retire.
However, the states are less and less prepared to face this expense: the World Economic Forum warned that the eight largest economies on the planet will have a deficit of US $ 400 billion for pensions in the next 30 years.
That figure is equivalent to multiplying by five the value of all the stock exchanges of the world added.
And the news about the pension funds of the developing countries is also not rosy.
That is to say that many of us could have to live on what we save.
Are you ready or prepared to do it?
To help you tackle this difficult task, the BBC Business Daily program consulted the famous behavioral economics expert and author Dan Ariely of Duke University in the United States.
Ariely just published “Small change: money mishaps and how to avoid them” ( Small change: monetary mishaps and how to avoid them) and has devoted to studying some simple tricks that we can use to encourage us to save.
To begin with, the expert explained why it costs us so much to save so much.
“One of the main challenges of behavioral economics is that the environment matters, we do not act simply based on our preferences, the decision has to do with what surrounds us ,” he said.
Ariely refers to all those things that invite us to spend : from a cafeteria to a new cell phone model.
“How many of those around us care about our well-being in the long term? Very few,” he concludes.
For the expert it is important to realize that “there are not many entities that are on our side” when we propose to save. On the contrary, most want our “money, time and attention”.
“They want quarterly income, not that you do well in the long term,” he sums up.
Then a key to start saving is to realize that “the world is not neutral, but is designed to try to get things out.”
The economist warns that living in a world of temptation not only conspires against our efforts to save but that it is even leading us to an earlier death.
That concluded a study conducted in the USA. that analyzed causes of death and more specifically how likely we are to accelerate our end as a consequence of our own actions.
“Before, that probability was 10% but now it’s 43%,” he explains.
What is the increase? ” Obesity, diabetes, smoking, using the cell phone while driving … are all temptations that kill us,” he says.
But even though our choices are causing us more and more damage, it is also true that we live more and more, thanks in large part to medical advances.
That is why another factor that we have to take into account to start saving is the increase in life expectancy.
“If we all died at age 65, at retirement age, life would be simpler,” Ariely acknowledges. But many live to 80, or more.
That means that we work for 30 or 40 years and then we must subsist another 20 years , or more.
In theory, that should lead us to save about half a year for our retirement for each year worked.
The Kibera experiment
Ariely told about three saving techniques that were put to the test in the poorest settlement in Kenya , called Kibera.
His team partnered with M-Pesa, a mobile phone service that allows money transfers very easily, and with an investment bank.
Together they put into practice a savings system so that the inhabitants of Kibera could deposit a small sum of money daily.
They used three savings formulas:
1. Easy deposit, difficult removal
They designed the system in such a way that depositing money was easy but removing it, very complicated.
People could make daily transfers to the bank with just a couple of clicks on their cell phone but in order to withdraw the money they had to take a bus to the city and go to the bank in person, something that could take up to four hours.
2. Easy deposit, difficult removal + reminder
The second system was like the previous one but in addition the bank sent a weekly reminder incentivizing to make deposits.
3. Easy deposit, difficult withdrawal + personal reminder
The same system was applied again but this time the reminder came not from the bank but from the children of the potential saver, who encouraged him to make a deposit thinking about them and their future.
Which of these ideas was the most successful ? Third.
“The children make us more idealistic, the children were key in the anti-smoking campaigns and in the promotion of the use of the safety belt, for example,” says Ariely.
But in addition, the last option has an advantage: it offers a reward .
“When you deposit money in a savings account, you do not receive any positive comments, but when you give something to your children, they thank you.”
The trick of the prepaid card
Another saving technique that Ariely recommends is having a weekly budget allocated for discretionary expenses.
This formula has two keys: the first is to start applying the budget on Monday, because if it is applied on Fridays it is highly probable that we will spend more during the weekend and we will run out of funds for the rest of the week.
The second key – and perhaps the most important one – is that to pay for all those discretionary expenses we use a prepaid debit card .
That is to say, a card to which the budgeted funds are deposited and which we can only use until that money is exhausted.
In this way we avoid the excesses in which we tend to fall many when we use credit cards.
A third idea that Ariely had was to gather a group of friends once a month to analyze their credit card expenses together .
“Each woman had to justify each one of her expenses,” explained the expert, who revealed why the technique – which he called ” spending buddies ” – was successful.
“After doing this exercise only once, the women told that they could hear the voice of their friends every time they bought something, which led them to change their behavior.”
Be careful with those dinner outings
A final advice from Ariely is that we analyze what we are spending our money to know if indeed that spending is making us happy.
The economist asked a group of people to analyze the details of their credit card expenses and tell them which expense they most regretted.
The answer was surprising: most regretted a dinner outing .
“When we go out to dinner we end up eating too much and drinking too much and then we regret the experience,” he warned.
So if you want to start saving a bit, you know where you can start …