Are you one of those who has trouble saving money? Or, want to do better at saving more? Well, you’re not alone. Right now, the national savings rate stands at about 5%. This is pretty weak considering other countries. France has a savings rate of almost 16% and Spain, nearly 14%. So what’s this all about – why are American’s saving so little money?
The answer may surprise you.
One researcher out of the University of Kansas says our love for multiple checking and savings accounts could be the culprit.
“For years, the conventional wisdom has been that spreading your money across various accounts encourages you to save”, Professor Promothesh Chatterjee said. “Nowadays, the average American has multiple liquid accounts, typically a combination of checking and savings accounts. But our research finds this is the wrong strategy to encourage saving. We find that individuals are more likely to save if they have only one primary account, rather than many accounts.”
While there are some great reasons for having multiple savings or checking accounts (as stated by Charlie earlier this year), perhaps the old wisdom needs further review?
Chatterjee cites two interesting theories of behavior: “motivated reasoning” and “fuzzy-trace theory.” Motivated reasoning implies that individuals find spending more enjoyable than saving and are motivated to search for reasons to justify spending. In such situations, vagueness enables them to distort available information to follow desirable spending motives. And having multiple accounts provides that vagueness.
“Basically, people look for an excuse to spend, and vague information facilitates this,” Chatterjee said. “And having multiple accounts provides just enough vagueness to do the trick.”
If I look at my family’s situation – we have a checking and a savings account at one bank. We also have multiple savings accounts open to which we funnel money in and out – saving for this or that. While we have a consolidated view of the checking/savings account at our bank – the others become money that is in the “back of mind“. For me at least – it sometimes gives me a feeling that I can spend more than I currently have in our main accounts. In other words – like the Professor says – it can provide me with “motivating reasons” to justify ‘wasteful’ spending.
While I find this research pretty interesting – I don’t think it necessarily applies to all of us. Some of us are great handlers of money and could have a bunch of accounts open and remain great savers. But, I would say – as a whole – these findings could provide some helpful insights into our bias’ to spending over saving.
I’d be interested to hear your thoughts on the subject. Do you have multiple savings and checking accounts open. And, do you feel the urge to splurge with the more accounts you have open?