Blame your brain for your lack of savings

Dollar sign inside light bulb

We know that we should be saving for the future.

But many of us don’t. A recent study found that half of Americans have virtually no savings at all.

While some may blame a low-paying job or out-of-control spending, the real reason might be in our heads.

Recent neuroscientific research suggests that our minds aren’t optimally designed to encourage long-term savings.

Before humans evolved to walk upright, most of our decision-making occurred in the more primitive parts of the brain lodged near the neck, just above the spinal column.

As you might expect, these highly preserved systems focus our attention on the most basic aspects of survival. Finding food. Getting out of the cold. Having sex.

In the thousands and thousands of years of our existence on the planet, these reptilian brains (so called because of their similarity to the brains found in reptiles) have not changed much.

They’re still all about immediate gratification.

The part of the brain that has changed most dramatically during our tenure on Earth is the frontal cortex.

Located above the eyes, this region of the brain, often referred to as the frontal lobes, is responsible for executive function. The frontal cortex is implicated in higher mental functions like planning, decision making, inhibiting behavior and morality.

This part of the brain might well be described as the mature bit, helping us to carefully weigh the consequences before we act and considering our future as we do so.

A neural pathway called the mesocortical limbic system connects these two discordant brain regions through the brain’s emotional centers and helps us weigh the risks and rewards as we make decisions.

But this particular setup means that these two areas are often in competition, which can make it more difficult for us to save money.

David Laibson, an economist at Harvard University, says the brain’s machinery is very good at telling us what to do in response to stimuli with immediate consequences.

“It’s harder to make decisions when the consequences are weeks or months or even decades away,” he says.

Immediate purchases are very rewarding, resulting in feelings of pleasure. There is simply not the same kind of rush involved with socking money away into your 401(k) plan.

Laibson’s work has consistently demonstrated that our frontal lobes, the seat of rationality and planning, can appreciate delayed gratification.

The reptilian brain, however, is much more attuned to the present.

So when it comes to making a decision about what to do with $100 — buying that new gadget or saving it for a rainy day — the gadget will usually win out.

“We have a natural urge to deal only with the present,” Laibson says. “It’s not that the future is completely invisible or irrelevant in our decision making; it’s just that we are biologically inclined to overweight the present.”

Laibson emphasizes that this doesn’t mean we are incapable of saving, just that we may not always be able to rely on our own self-control to do it.

“One of the easiest ways to save is to just put it on autopilot. Tell your employer to take a fraction of your paycheck and put it into your 401(K) plan. Don’t even let that money get to your checking account,” he suggests.

Laibson also says that you can curb the desire to overspend by using a debit card instead of a credit card. “Tie your own hands so you can’t be tempted to overspend,” he says.

Paul Zak, a neuroeconomist at Claremont Graduate University and the author of The Moral Molecule: The Source of Love and Prosperity (Penguin Group, $26.95), says that we can actually use some of our biology to help us save better.

Oxytocin, a neurochemical that is also critical to mesocortical limbic function, is implicated in trust and social behaviors. By adding a social element to your saving, you can also help suppress the desire for immediate gratification by having a social reward that replaces the spending one.

“What we’ve shown in our oxytocin research is that social support is very important to savings,” Zak says. “The best savings often happen when you make those decisions with other humans involved, with a spouse or in investment clubs. By adding that social element, and releasing more oxytocin, people become more patient and become better savers.”

While some may see Laibson’s work as an indicator that humans are hard-wired for spending over saving, he says that’s incorrect.

But knowing that there is a neurobiological predisposition to favor the present over the future is important as you consider your financial plans.

“We need to match our spending behavior to our good intentions,” Laibson says. “It’s clear that savings are not impossible. But you need to know that you can’t always rely on perfect self-control to make those savings happen.”