Saving self control: A behavioral approach to analyze why individuals save and what prevents them from doing it well

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How and why consumers and investors save, has remained as a puzzle since modern economists approached the question. Clearly, we save because we have to, but we rarely ever want to save as an end in and of itself. Current the leading models present this dilemma as a struggle between two personal selves: a present self who wishes to consume and a future self who relies on prior savings. This paper will attempt to survey various approaches that attempt to reconcile this dual-self dilemma, explain what causes us to save, and discuss why it is becoming increasingly important to start taking saving seriously.

Extraits

[...] The new model essentially emphasizes the modern erosion of commitment devices that were meant to keep us in check. Indeed, Laibson admits that “being able to borrow against illiquid assets is welfare reducing,” since it benefits today's self at the magnified expense of all future selves. An important interpretation to be drawn from this model, especially when compared to the neoclassical life- cycle model, is that consumption habits are influenced by the financial environment, and they are not necessarily innate to us as a species. [...]

[...] The results show that “users who pay a high price per attendance in the monthly contract display a longer gap between last attendance and contract termination.” In other words, people who stopped going to the gym frequently took an extended amount of time to cancel their contract and/or switch to a cheaper contract. On average, this cancellation lag was about 2.29 months and it cost users membership payments of $185. These observations lend great empirical credence to Strotz's claims that consumers make myopic and inconsistent choices. The gym-goers willingly pay for a product to be consumed in a future period, but as that period draws nearer the consumers alter, indeed they appear to abandon, their prior choice sets. [...]

[...] savings rate down as well. Perhaps the most convincing explanation for the reduction in personal savings, as verified by Figure is the increase in consumption due to rapidly increasing wealth. Clearly, the S&P500 scaled to per capita disposable personal income presents a near mirror image to the personal savings rate, and this implies that Thaler's mental account of current assets has been maintaining a high MPC. Even with the market correction at the turn of the century, savings have stayed remarkably low perhaps due to a shift from stock appreciation to housing appreciation. [...]

[...] Macroeconomics 4th edtion. New York: Worth Publishers Pinker, Steven. How the Mind Works. New York: W.W. Norton & Company Shefrin, Hersh M & Thaler, Richard H. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Oxford University Press, vol. pages 609-43, October Shefrin, Hersh M & Thaler, Richard H. Economic Theory of Self-Control,” The Journal of Political Economy. The University of Chicago Press Shiller, Robert J. [...]

[...] Furthermore, ATM networks sprouted up throughout the country in the late 1970s/early 1980s which allowed for quick and easy access to virtually unconstrained liquidity. However, debit card usage has picked up dramatically in the past two years, and has even outpaced credit cards in terms of volume of transactions for some of the major companies, but this should not be cause for overexcitement. Surely, a shift from a buy-now pay- later system to a buy-now pay-now system appears more responsible (and it should certainly be encouraged more), but the reality is that levels of household debt have simply not yet slowed down. [...]