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What Motivates People to Save Money?

What Motivates People to Save Money?

Everybody loves to be a winner. Just like parents have been known to dangle money in front of their kids to motivate them to get good grades, once President Obama signs the bill passed late last year, banks and credit unions can go the full monty with prized-linked savings accounts to entice people to save, particularly those of low to moderate income.

Already there are seven states that participate in the Save to Win program. It’s working. Since the first program in Michigan in 2009, to date, more than 14,600 people have won $1.59 million in prize money. As of early this year, more than 70,000 have saved $40 million.

While a recent America Saves Week survey showed some improvement on nearly a dozen savings indicators, like the fact that 71% of those polled said they are spending less than their income and saving the difference, compared to 68%, and those who said they are saving at least 5% of their income grew from 47 to 52%. However, nobody is ready to say our saving strategy is where it should and could be.

The results the Save to Win program has achieved are notable, given that one in four Americans has no savings

The results the Save to Win program has achieved are notable, given that one in four Americans has no savings, and the inadequate funds most people have set aside for retirement has experts talking about the retirement savings crisis in this country.

So are prized-linked savings accounts the answer? No doubt people like games and winning. Last year Americans reportedly spent more than $70 billion on lotto tickets. Financial institutions are making an effort to attract new business. While the rules vary, savers are eligible for monthly prizes that can range from $25-$100, quarterly $500-$5,000 and an annual or grand prize of $5,000 or $10,000.

Band aid on a big problem?

"A true wealth builder or saver does not need any motivation to save, other than they know that they should save," says Steve Repak, a certified financial planner and author of Dollars & Uncommon Sense: Basic Training for Your Money. On the other hand, he says, offering prize-linked savings accounts can motivate non-savers to save only if the prize is large enough to compensate the inconvenience for the non-saver to open an account.

"I just finished participating in Military Saves at Rose Barracks in Vilseck, Germany and spoke to the representatives of financial institutions that were located on post. They found that when the prize was lower, for example $25 for opening an account, even though it was free money, not a lot of people took advantage of that. When the prize was increased to $50, they were able to get more people to participate," says Repak.

Joseph Ritter, Jr., a certified financial planner with Zacchaeus Financial Counseling, says if he had to choose between $25 a month on the lottery or $25 per month on a prize-linked savings account he would go for the PLS account. "However, in this simple comparison, what you see is that there is no real lifestyle change taking place. At best PLS offers only a marginal difference in a person’s psychological approach to money, spending and saving, which means that there will be little socioeconomic improvement on a large scale," he says.

While the magic of growing a savings account will be enough for some to want to change their money habits for the better, many others, will still go on with business as usual, he says. "To achieve lasting changes, an individual approach is required, not mass marketing. Unfortunately, banks stand to benefit the most from the significant branding opportunity and from making money on the increased deposits."

How to get lasting change

"The trick is to first get people to understand that living day-by-day when you can save, is risky," says Toby Bloom, an income protection specialist.

He says simplicity is key, "People can start out putting money in a jar for a rainy day. As time goes on, that jar will fill up and they can start a savings account."

Those small steps can lead to a habit of saving. "Saving money is solely a matter of habit. Think about something that took you a really long time to learn. At first, it was difficult and you had to devote a lot of mental energy to it. But as you grew comfortable, it became much easier – almost habitual. In truth, the habit of saving can be made as fascinating as the habit of spending, but not until it has become a regular, well grounded, systematic habit," says Kevin Cahill, president and founder of Canadian Legacy Builder.

People have to be ready to do the work. "Saving requires more force of character than most people have developed, for the reason that saving means self-denial and sacrifice of amusements and pleasure in scores of different ways," says Cahill.

To get people to start saving, "we need to focus less on the how and more on the why," says Brad Pagano, co-founder and managing director for the San Diego Financial Literacy Center. "We have to create dynamic educational opportunities that start at a younger age to teach our generations about the importance of having a plan and what that plan can help you achieve."

The bottom line -- saving for savings sake often isn’t enough. It’s about goals. Says Bruce Sanders, a consumer psychologist, "Surprisingly, the research finds that, in general, people with one important savings goal will deposit more."

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Robert   |     |   Comment #1
smartypig.com is really helpful for savings goals.
Anonymous   |     |   Comment #2
Since we crawled out of caves, stood up and got on with being human people have understood saving. Winter, all on its own, taught people the immutable truth they would die if they did not save some of their harvest, preserve some of their meat or pack up and move to warmer climates. We are rapidly becoming a nation of haves and have nots. Some have a functioning brain stem, some do not.

"Plan your work, work your plan" is something I learned in 2nd or 3rd grade. But, heh, thanks for quoting, "We have to create dynamic educational opportunities that start at a younger age to teach our generations about the importance of having a plan and what that plan can help you achieve." How pathetic we have become.
Anonymous   |     |   Comment #3
Started teaching the children at 3 with their first allowances. 1/2 went in the bank for college, 1/4 went in the bank for a car at graduation (which they didn't buy because we paid for college if they never got in trouble, had no car, carried a 3.5 or better and had the same rules in college except they had to carry 15 credit hours and stay on campus). and 1/4 for savings for what they wanted, candy, movie, or a new toy. By the time they saved for what they wanted they had changed their mind several times. We always purchased their first 2 wheelers for them, and their first big bike as they grew. If they wanted another one they had to pay for it. They learned to take good care of their toys. Their Tonka trucks and other toys looked like new when they sold them at our garage sales. 
When I was young after our Saturday housework and homework were done my sister and I had to walk a mile and a half to the bank to put our money in the Christmas Club and our savings account. 
anonysaver   |     |   Comment #4
I think it starts with the marshmallow experiment (basically, give a young kid a marshmallow, and tell him he/she has a choice: he can either (a) eat it now -- no worries, but that's all, or (b) NOT eat it for 10 minutes, and if he can wait, he will get two marshmallows. Tests to see the personality (and willpower) of kids. To me, that's savings in a nutshell. There are plenty of people who, when receiving an extra $100, will go out on the town or buy a new pair of shoes. But there are those who instead will save it, either for something they want (rather than a spur-of-the-moment impulse buy) or for a later rainy day. There are good and bad points to each (living life or responsibility and a clear goal). Americans, in general, save far less than citizens of other countries (ie, Japan). Again, points to each (it's Americans' overspending that has kept the US economy much better than if our savings rates were higher -- but also can cause massive problems with a population can't take care of itself because it didn't act responsibly). Like most things in life, the answer is a balance between the two extremes. Personally, I try to spend less and save a lot, though besides saving long-term responsibly (for that "rainy day" when I will be older or need it), I also reward myself with occasional, pre-planned treats (ie, saving for a trip every couple years). What I almost never do is take the money and spend it on whatever's in front of me just because I have it. Why do (some) Americans save? Because like a squirrel "squirreling away" nuts for the winter (or when he wants it later), if you don't, then you'd better have a rich uncle who likes to show off...
mustsavemore   |     |   Comment #5
I spend every dollar I get, but it's mostly on housing.  So I can save.
paoli2   |     |   Comment #11
Mustsavemore:  If your "housing" money is spent on rental property and you are getting rents, that is investment property and a way that many people do to build up savings for the future.  If you are spending it on very high rents or a personal home which is beyond what you can afford, that could be why you "can't save".  "When" we owned a home, I made sure the mortgage was so low that we could always afford to pay it and save.  Life is all about choices.
mustsavemore   |     |   Comment #13
Paoil2: I will have you know that I spend 65% of my take home pay after taxes on rent.  I rent, not own property.  Tell me who can save with that!
paoli2   |     |   Comment #14
mustsave:  Wow!  You must be living in New York!   I don't know what you do for a living but you need to get a transfer to a cheaper city!  That doesn't even leave you enough to pay for car, health insurance, food, utilities and even "basic" cable.  You must be still looking at tv with rabbit ears.  If you move to a cheaper neighborhood it could be dangerous.  That is why we rent where we are.  The  cheaper rents are not always in the safest neighborhoods unfortunately. 
Anonymous   |     |   Comment #8
Ah, but the marshmallow experiment fails to encourage PRODUCTIVITY. Who made the marshmallows and how many did they make. How about, "I'll give you one marshmallow now or you can spend 30 minutes after school cleaning the garage out after which I'll give you five marshmallows. You can eat them all at once or save a few for a midnight snack. Your choice." Saving is about earning more than you need, recognizing there's a future and planning accordingly.
Anonymous   |     |   Comment #7
The answers to both what motivates people to save money and what motivates them not to are obvious to anyone with an IQ higher than a rock.These dumb articles are an insult to the intelligence of anyone who is a regular or casual reader of this or any other financial site.
Anonymous   |     |   Comment #9
Spending money and obtaining "stuff" has an impact on some humans akin to drug use.  As with any drug, the high wears off and likely as not more spending is needed next time to generate the same high.  

But just as not everyone needs to consume alcohol, or smoke pot, or use whatever might be their drug of choice to feel good, likewise not everyone receives the same "kick", the same elevated mood, from spending money.  For the latter sorts of persons, saving money is far easier than for the former, and such individuals are therefore more inclined to save.    
Anonymous   |     |   Comment #10
All learned behaviors.
Anonymous   |     |   Comment #12
I think people who have to earn their money are more likely to be savers than those who are given money.  Spoiled kids these days have no appreciation of what it takes to earn their own money by doing household chores or holding down part time jobs after school and weekends.  Summer vacation for me was finding a summer job.   I thank my dear departed parents for teaching me what really counts in life.  I learned very early in life to save a portion of my earnings no matter how meager they were at the beginning .