Cant Stick to Your Savings Plan? Find the Right Commitment Strategy
Do you need to tie yourself to the Mast, or do you just need to label your money?
Unless commitment is made, is made, there only promises and hopes… but no plans.”
― Peter F. Drucker
Achieving a savings goal is simple but hard. It requires only two steps:
Continue saving until you reach your goal.
What motivates a person to start saving money is completely different from what can help someone continue their savings plan until they reach their goal.
Today, I will review evidence that shows how two different forms of savings commitment can help you stick with your savings plans.
Tying Odysseus to the Mast
One of my favorite memories of middle school was reading Homer’s The Illiad, which tells the story of the Greek-Trojan War—this is where we get the idea of “the Trojan horse” or having an “Achilles heel.”
The follow-up to the Illiad was The Odyssey, which tells the tale of Odysseus, a Greek hero from the Trojan War—returning home. During his journey home, Odysseus and his crew come across Sirens, evil mermaids whose “siren call” hypnotizes people to throw themselves into the sea.
To avoid that fate, Odysseus instructed all his crew to fill their ears with wax and tie him to the mast to avoid the siren call from beneath the waves. Odysseus knew the only way to succeed in his goal was to remove any choice in the matter—no matter how badly we might want to chase the siren call, he was physically unable to do so.
I bring this up as an introduction to an amazingly titled research paper titled “Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines.”
The researchers worked with a bank in the Philippines to offer a savings account that prevented people from withdrawing any money until they reached a pre-determined goal of a specific date or saving a particular amount. By using this product, the savers were tying themselves to the mast—no matter how badly they may want to abandon their savings plan, they had no choice but to see it through.
The researchers noted that this savings tool was handy for people with a high degree of present bias—favoring spending today over saving for tomorrow. Those who used the account saw their savings increase by 82% after a year.
This type of restrictive savings account is a form of “external” commitment. Your commitment is not reliant on your willingness to see the plan through—it works because you aren’t allowed to withdraw your money. External commitments save you from yourself by tying you to the mast.
Restricting choice doesn’t always work
Not everyone wants to be tied to the mast.