People with This Type of Goal save the Most Money
How goal setting, personality traits and psychology impact savings rates
Let’s continue taking a wrecking ball to oversimplified financial advice.
The Money on My Mind series aims to help you understand how your psychology impacts how you view money and to help you make better financial decisions.
Read to the end of this post to learn:
Which personality traits are associated with higher savings rates
How optimism, self-control, and your financial “attitudes” impact your ability to save
The type of financial goal that helps lower-income households increase their savings by 127%.
The link between goals, personality traits, and savings rates
Low-income families with a plan to build a rainy day fund increase their savings by 127%.
That was one of several simple and powerful findings from a study that examined 3,382 UK households to identify which psychological characteristics had the most significant impact on savings rates.1
The researchers defined “savings” as short-term liquid savings like cash or investments that could quickly be converted into cash.
Households in the study were divided into two groups:
Established households, which were older and had higher income
Striving households, which were younger and had lower income
This is critical because, as you might imagine, what motivates and prevents striving households from saving money is very different from established households.
In addition to demographic and saving information, the survey also measured how the following variable impacted savings.
Financial literacy
Self-control
Optimism
Attitudes towards savings
Types of savings goals
Participants were asked to measure on a scale of 1-7 how each of the above variables applied to them. For example, when asked about optimism, a seven would be highly optimistic, and a one would be extremely pessimistic.
The big takeaway
I won’t bury the lede any further—here’s the single most important takeaway from the study:
Having “preventative” financial goals—such as an emergency fund or a house or car repair fund—was the number one factor that helped striving households save money.
A one point increase in the emphasis of preventative financial goals led to a 127% increase in savings.
By comparison, for established households, a one-point increase in their focus on preventive goals led to a 15% reduction in savings. For these established households, focusing on “promotion” focused goals—goals focused on pushing their financial position forward— was most effective, leading to a 99% increase in savings for every one-point increase.
It’s not hard to understand why striving, and established households have completely different savings motivations.
Established households are more likely to already have savings for these “preventive goals,” and they are much more focused on further increasing their net worth.
Striving households don’t have that luxury. It’s hard to be focused on playing “financial offense” when you are one leaky roof or broken car engine away from financial hardship.
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