- Why do so few of us have a sufficient emergency fund, especially after the Great Recession?
- Why do so many business owners have insufficient cash flow/cash reserves?
- Why do so many Americans have insufficient investment/savings for retirement?
(Just as Karl asked: why don’t we care for our Future Self?).
Yale behavioral economist Keith Chen offers a powerful clue in this TED talk:
Here are a few ideas I gleaned from Chen’s talk:
In his study of the Organization for Economic Co-operation and Development (OECD) savings rates and language use, Chen discovered the following:
The OECD is comprised of 34 high-income, developed countries that value democracy, market development and world trade. He discovered a connection between our use of verb tenses (!). Countries whose languages use the present tense for any time period do not draw a hard line in the sand between the present and future—time is viewed as a sort of “eternal present.”
The idea behind Chen’s proposal is that every encounter with a distinct grammatical marker for future time creates a little mental nudge that leads to a conceptual partition between present and future time, and hence, a de-valuing of future benefits relative to present benefits.(emphasis mine)
-Julie Sedivy in Language Log
Even financial modeling (Net Present Valuation) and the economic notion of “sunk cost” (don’t cry over spilled milk) tells us mathematically that “a dollar today is worth more than a dollar tomorrow.”
The result for countries whose language lacks a future tense? “Empirically, I found that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese.”
In addition, Chen notes in a recent paper published in the American Economic Review that language is actually a marker of a deeper cultural driver toward savings.
Comment: Why do you think saving is so hard for Americans?
This week, consider common situations where you might notice the mañana attitude toward saving and other financially lazy behaviors. A few ideas:
• Employee attitudes toward expenses
• Conversations with clients where this behavior shows up
• Conversations with intergenerational attitudes toward spending vs. savings