The science of saving success

Amid the summer break, it’s easy to envisage our New Year’s saving plans going off without a hitch.

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But at the moment, as higher interest rates and cost of living increases bite family budgets, it may be increasingly difficult to meet those aspirations.

" We are all loaded with psychological biases, attitudes to saving and financial capabilities that can make saving difficult.”

Is there a way to better understand the psychology of our own spending which could aid our success?

Unsurprisingly, behavioral scientists have long identified these trends and even have a language for explaining it.

Understanding what researchers deal with every day can help us better understand our saving goals.

As ANZ behavioral science manager Monish Khanderia points out in new research, we are all loaded with psychological biases, attitudes to saving and financial capabilities that can make saving difficult.

To put it simply, it is often our attitude towards saving that trips us up despite best intentions.

Fresh start

For example, some sneer at the very notion of New Year’s resolutions and “new beginnings”. But it is powerful enough for behavioural scientists to have a name for it - the “fresh start effect”.

And there is plenty of research to back up its power.

Everything from a birthday to the start of a new week, month, season or a holiday are examples of “temporal landmarks” – or “fresh start” moments. People often use these as an anchor to psychologically kick off a new time-period or cycle.

Fresh starts create a psychological reset in people where they detach themselves from perceived past failures, undesirable behaviours or ineffective habits. It helps them end one behaviour pattern and kick-off a new behaviour or habit pattern.

Several studies find evidence for in many parts of a normal year.

One study on the “fresh start effect” found people are 145 per cent more likely to commit to their goals set at the beginning of a year.

Australians embrace goal setting and ANZ data backs this up. More than half a million Australians are using ANZ technology to set goals and map their success.

Data from the ANZ Plus app from January to November 2023 showed customers had created 402,000 savings goals for aspirations including travel, buying a home, saving for a rainy day, buying a car and covering expenses.

An additional 146,000 people who use the classic ANZ app pursued savings goals as well. The top aspiration among these customers was saving for a house.

Plan to succeed

So if Australians embrace goal setting, why do savings plans sometimes fall over? Put simply, good intentions without a firm plan is the main stumbling block.

Having the intention to save and set goals is not enough. People often fail to start saving, stay on track or complete their goal because their values, attitudes and intentions don’t always match their actions.

This is why proper goal setting is so important.

People need to specify when, where and how they will act towards our goals. Studies have shown the impact of detailed planning on achieving one’s goals is 65 per cent more than forming goals vaguely. 

This includes the crucial step of ensuring the goals are realistic. You can’t save a house deposit in a week. But if you break down larger-overall goals into sub-goals. This gives a sense of accomplishment, increases motivation to save and makes it more achievable.

Also, this approach ensures people regularly monitor progress towards their goal – which can include small rewards for reaching a milestone or sub-goal.

About 90 per cent of people who receive immediate rewards show more persistence on goal-related activities. They know there’s a reward waiting, which can reinforce positive behaviour.

Eyes on the goal

Another tip is restricting the ability to deviate from a savings goal. For example, direct debits into another savings account enforces money to be saved before it is spent elsewhere.

Another fascinating area connected to the latest technology, is the practice of “round ups” when you make a purchase.

After every purchase, the technology “rounds up” the purchase amount to the nearest dollar – transferring that small amount into a savings account.

As a cashless and digital equivalent to ‘change jars’, round-ups use the psychological principle of micro-saving – or converting spare amounts into a steady stream of contributions to a savings goal.

Several fintech companies and banks, including ANZ, now incorporate round-ups in their offerings. As adoption of this feature expands it will be interesting to see what the research shows.

What’s exciting is this is only the beginning for these psychological “nudges” being incorporated into our technology to help us save.

Understanding savings psychology should not be a scary thing. The more aware we are of our own impulses, the more easily we’ll succeed in meeting our savings goals.

Mohamed Khalil is Head of Financial Wellbeing, Research and Design at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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