Posts tagged "spending"
Can’t Save? Blame Your Brain
The average American consumer has a negative savings rate — meaning they spend more than they earn. Why?
Fascinating new research is brought to light in a recent article in Money Magazine:
When you imagine choosing between making a quick buck or growing rich later, you know the right answer: Be patient and hold out for the bigger gain. But as soon as you face a real rather than an imaginary choice, the fast money seems irresistible.
New discoveries in neuroscience labs are helping to explain why it’s so hard to resist the allure of instant gratification. It turns out that your brain is much more aroused by $1 today than by $1 tomorrow. And $1 six months from now barely registers.
The article goes on to quote one of the study’s authors, Carnegie Mellon University’s George Loewenstein, as saying there may be an evolutionary component to our behavior when it comes to spending versus saving. It turns out that during hunter-gatherer days, people faced scarcity and learned to consume when they had the opportunity.
When it’s time to close a mortgage, many of us don’t always go with the option that offers the best long-term financial gain. For instance, we may choose to pay a higher interest rate over the entire term of a mortgage in order to save a small amount of costs at closing.
Now we have an excuse. We can blame our brain.