Aw what a cute baby – let me put a fiver in her college fund….
We all know that aspiration and pretty pictures can make us spend money – otherwise Kate Moss and Vogue would have been out of business years ago, but apparently the same kind of feelgood suggestion can help us save money too. Behavioural finance is the buzz word behind the National Employment Savings Trust (NEST – geddit?) the new national pension and savings scheme which is designed to make it easier for employees to get their head round the idea of saving when mandatory workplace pensions come in later this year. The theory of behavioural finance, according to Helen Dean of NEST writing in today’s Daily Mail is that despite our best intentions, a combination of inertia, fear, and good old fashioned instant gratification, means that we all behave like toddlers when it comes to saving for our future. Remember those experiments when four year olds were offered one sweetie now, or two if they could be patient and wait for half an hour? Well surprise surprise, those who couldn’t wait and snaffled the sweet straight away turned out, in later life, to be the ones with the one bar fire and cat food while those who had the self-control and sense to wait it out were swanning around the Med on their yachts. It was also discovered that linking saving to positive images, for example having a photograph of your children on your desk or even in the envelope you saved money in, helped people to associate saving money with positive feelings. NEST is harnessing those basic instincts, to try to encourage us to save by taking the pain out of delayed gratification and making saving as painless as possible. Tactic number one is to encourage people to save tiny amounts from their salary so that they barely notice it, then as their salary increases, upping the amount. Although they are installing clear opt out systems they are counting on our natural fear of forms and inertia when it comes to changing our finances to keep us saving. Sneaky, but successful. Professor Schlomo Benartzi, co-founder of the Behavioural Finance Forum in America has had great success with introducing the theory in America and Nest hope to replicate that here in the UK. So what do you think – would slipping a family photo in your wallet make you less likely to splurge in the same way that a photo of yourself in a bikini on the fridge door stops you reaching for the sticky toffee pudding? Let me know.