Why do we spend money to feel good now, even if it’s clearly going to have negative consequences later? And why do we seem to make better decisions if they are planned and not impulsive?
The answers are complex, but just so you really get the idea, first imagine yourself under a lot of stress. Maybe you are working and studying, so you’re always flat-out busy, and there’s no end in sight. Or perhaps one of your parents is gravely ill and it’s hard to communicate about this with siblings you don’t get on with.
So you should feel really stressed.
Then without thinking, say which of these following suggestions sounds like a great idea a/ now, or b / in five years time: buying two pairs of the same fancy shoes you like because they are on sale, or selling your car today for $500 less than you could probably get because a buyer is ready with the cash and you want a weekend away.
You probably favour option a/ in most cases, meaning you want the ‘reward’ now.
Why? Because, according to behavioural scientists, “present rewards are weighted more heavily than future ones. Once rewards are very distant in time, they cease to be valuable,” so says behaivoraleconomics.com.
This was the finding of landmark research done in 2002 by Shane Frederick, George Loewenstein and Ted O’Donohue, and published in the Journal of Economic Literature.
Interestingly, when the reward is delayed, we are more prepared to wait to receive a greater reward. Research shows if given the choice between $100 in a year or $120 in 13 months, we will probably wait.
All this suggests if we plan for the future we are likely to make better decisions about money. But it depends what that future event is, and how far off it is.
If it’s a skiing holiday in the Canadian Rockies, we will probably swing into action. If it’s retirement at age 70 (as the Australian Federal Government proposes from 2035), that feels somewhat less urgent, even though few would argue it’s more important.
In a 2014 report on savings, the Reserve Bank of Australia showed “younger households place more weight on saving for large purchases and emergencies to smooth near-term consumption rather than saving for longer-term (retirement) consumption.”
“Keys to managing decisions like these are to make those far-off outcomes feel closer,” Peter Sokol-Hessner, assistant professor in the department of psychology at University of Denver, told The Huffington Post.
He suggested “to imagine how you’ll feel when you can use those retirement funds, how grateful you’ll be that your younger self sent this gift into the future.”
If that sounds like a fairy story, there is research to back up the idea that we are more careful as ‘our future selves’. A study run by UCLA Anderson School of Management in 2011 found when people visualised themselves as 70 and were asked to imagine what they’d do with a $1000 windfall, they put more than twice as much money towards their retirement as those who were asked to visualise themselves now. They were more likely to choose short-term options like planning an extravagant outing or buying someone a gift.
So where does mindfulness come in?
Let’s be clear: a mindfulness practice, even one focused on money, isn’t going to directly impact your Canadian Rockies ski fund, let alone your retirement savings.
But if undertaken consistently, a mindfulness practice could help change the decisions you currently unconsciously make about spending.
For instance, you may decide to do extra research before selling your car or home, looking more carefully at trends and brainstorming other ways to find ready cash.
It does that by increasing time between your thoughts: that well-worn but accurate metaphor of busy thoughts as clouds against a blue sky that represents an untroubled mind.
“Thoughts are like clouds,” says Financial Mindfulness’s Chief Mindfulness Officer Tomas Jajesnica.
“When you can see more sky and less clouds you start to move out of an immediate, involuntary response state and towards the type of thought where you could think about your ‘future self’.”
A big benefit of a regular practice is a buffer against the power of marketing, he says. Think about the hype involved around the release of the next stage of a sought-after apartment development: it’s in the interests of a real estate agent to get you into a feeding frenzy state with other potential buyers, so the stage sells put, the project can go up and the next stage goes into marketing overdrive.
“But it’s not just effective in dealing with real estate,” Jajesnica says.
“A lot of marketing works on the idea of scarcity and urgency; some saying ‘quick, there’s only 100 in stock’ , or ‘hurry, it’s a brand new order’, or whatever. Marketing works on you by getting you to make a decision right now.
“A mindfulness process will help you to buy things rather than just be sold to.
“It’ll allow you to come from your own space, consider the consequences of your actions and respond by making decisions, rather than be manipulated by marketing.”