How employers can break down the barriers to saving

Savings. I’m going to assume you agree with me that they are important — savings allow us to cover unexpected expenses without reliance on debt and credit, they allow us to plan for gifts and holidays and also take time off from working when we need to. Savings are a fundamental pillar of robust financial wellbeing — so why do so many people find saving hard? The answer isn’t simple, it’s as complex and individual as each and everyone one of us.

We recently surveyed more than 1,000 people about their relationship with money and found that only 40 percent of those surveyed disagreed with the statement ‘I find it hard to save regularly’.  I’m going to assume that the people we surveyed, like ourselves, also think that savings are important. So why is the number of regular savers so low?

Only 40 percent of our respondents indicated they’re saving regularly, which means under half are likely able to meet emergency expenses when they happen without having to borrow or ask for a favour from a friend or relative. Equally worrying, only 40 percent of people are saving regularly towards goals, either short or long term.

It is easy to jump to conclusions here — the people we surveyed are over-spenders or possibly living pay cheque to pay cheque because their expenses have ballooned beyond the capability of their income or their income is low so they save when they can but not regularly. Almost certainly our survey population has all three issues represented because they're also represented in the broader population. Does it tell us the whole story? No, because for that we need to understand how we think, feel and subsequently act because they can be disconnected and sometimes imbalanced.

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What holds people back from building savings?

Sometimes we know we should but we don’t, other times we know we shouldn’t and we do — very few of us manage self-control across the entire spectrum of our lives. Our relationship with our money is no different. There’s also what we know, don’t know or haven’t been taught, how our parents managed their money and how our partner manages theirs. What’s more, our relationship with money is also certainly influenced by our personality. 

Let’s also not underplay the society we live in — we’re digitally enabled which means information is easily accessed but the ability to spend our money has also sped up at the same pace. We’re targeted, retargeted and relentlessly marketed to by companies and our social network who make spending money look like a sure path to happiness, or at the very least a lot of likes and shares. When you think about saving, there are social and psychological barriers you have to push through because it might feel like a trade off against some strong societal norms.

We definitely work better with a goal to motivate us because when our money is being saved for something abstract it can be hard to stay motivated. But even with a goal for saving we might stumble because of our ‘present bias’ which, simply put, means we tend to focus on the short-term rather than our future. 

Also, life tends to get in the way of even our best intentions. We might start strong and commit to saving, work hard to build a really strong savings habit but then all four tyres, on the car that you rely on to get to work, need replacing and you’re back to day one of your savings regime. It requires strong motivation to begin again with nothing to show for your previous efforts and for some people, getting back into the savings habit is a real hurdle.

Our everyday budgets can also be a blocker to savings — we allocate every dollar towards something but don’t allocate towards saving because our present bias has us focused on getting through the next few weeks, rather than making sacrifices and looking long-term towards buying a new car or saving for a home deposit.

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Removing barriers can kick-start savings

Goals are important because they help us visualise what we’re saving for and the easier it is to save, the more likely we are able to sustain the habit long-term. But, there’s more to savings than setting goals — we need to redesign savings experiences to remove some of the psychological barriers. 

Interest rates, bonus offers, application forms … the actual act of opening a savings account can be daunting and easily put off to tomorrow — present bias indicates that you might. The process of opening a savings account certainly needs to be simple and there's more that can be done by financial institutions.

Also once you’ve been paid, you’re likely to experience a phenomenon known as the ‘payday millionaire’ feeling, how much you treat your income like a windfall will come down to how well you’ve budgeted, forecasted and also how well you’ve trained yourself to view your income as a tool, rather than a treat.

Additionally, enabling savings to be pre-committed before the actual day of pay can help because it removes the decision once it hits your bank account — you’ve already successfully saved and the remainder of your income can be used to budget and meet your expenses. It’s essentially using technology to bypass all the barriers and create a good habit.

We also need to talk more openly with each other about challenges we face with money — it doesn’t need to get too personal but we need to find ways to destigmatise money as a topic and support people who may have lower levels of financial literacy than others and also those that are facing some really challenging personal situations.