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Australia is in the big league. According to the Bank of International Settlements (BIS) and the International Monetary Fund (IMF), we have the second highest household debt to GDP ratio out of 43 countries, with Switzerland getting the chocolates.
But while household debt has been rising, we should not think this is a new phenomenon – Australians have typically not been savers.
We’re not alone in this. Indeed, if a study by researchers at Cornell University is on the money, it’s an American trait, too. This piece of research contends that Americans are far more attuned to seeing opportunities to making money than saving it. It seems our “grey matter” is very creative when it comes to making a buck, but not nearly so good at seizing opportunities to save a dollar.
What the study did was measure our attention to earning or saving money. According to a Wall Street Journal article, participants had to identify colours shown quickly on a computer: one “earning” colour that let them gain 30 cents, a neutral colour that had no monetary eﬀect and one “saving” colour that let them avoid losing 30 cents.
When the “earning” colour was shown, a staggering 87.5% of participants identiﬁed it more quickly and accurately than when the “saving” colour was shown. Even in trials that framed “saving” as earnings that would come slightly later, participants were still better at immediate earning.
In the study’s second part, participants had to identify which colour appeared ﬁrst. Three out of four said they saw the “earning” colour appear ﬁrst—when in fact, the “saving” colour did. This suggests our “earning” bias may even be strong enough to warp our perception of time.
“It’s such a powerful bias that it literally distorts the lens with which you see things. It’s not like people don’t care about savings,” says Adam Anderson, an associate professor and co-director of Cornell’s Aﬀect and Cognition Lab, who co-wrote the study and is quoted by the Wall Street Journal. “We’re kind of blind when those opportunities are presented.”
Australians, I would argue, are like Americans. We are good at earning money, but not so good when it comes to saving it. Perhaps a key reason is the fact we spend much of our lives making our “hard earned money”, and so little our lives considering, or working on how we can hold on to it and save it.
We need to spend more time training ourselves to save money.
At Raiz Invest, we would like to think we are playing a small – but significant – role in changing this thinking about savings. Our App, which now has more than 175,000 active users, many of whom fall into the millennial demographic, is an easy and price-competitive way to automatically save and invest.
In the process we are teaching Australians, especially young Australians, about saving, making it a daily part of life, just like working to earn it. In the end we are hopefully empowering them to have a far greater sense of control over their financial affairs, of which saving is such a big part.
It won’t happen overnight. But it does need to happen, and with governments and regulators still only paying lip service to financial literacy education in the schools, we hope the Raiz Invest App will be part of the solution to help Australian earn more, while saving.
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