Why you didn’t save for the rainy day
Economists are heralding the recession as a turning point in our spending habits but are they right? We spoke to Michael Norton, a psychology professor at Harvard University and author of Happy Money: The Science of Smarter Spending, to find out if we really will be swapping shopping sprees for savings accounts
Islington long ago joined the ranks of London’s top ten most expensive boroughs and rent prices are rising faster than in any other area. Across the country, we are told that the recession is biting households hard. However, as this graph from Lancaster University shows, consumer spending has actually risen or at least remained stable in almost every aspect of how we spend our money.
Far from the optimistic message economists are sending out, we are not only spending more than ever, we are also not saving. The Office for National Statistics reported in March that people are starting to save less now that the financial crisis is ending. At the height of the recession, we were saving around 9% of our disposable income; now we save just 5.1%.
Michael Norton says that the reason is very simple: “Saving isn’t fun or interesting. When you spend money, even if you spend it on something you don’t need, the experience of it is actually pretty fun because you’re getting something back. Saving money is difficult because you might get something back much later on. Sure, when you retire, when you’re 65, you’ll have more money but as a 25-year-old that is so far from who you are. It’s hard to feel like you’re really going to get anything out of it.”
In fact, the motivations behind a spending go much deeper than a moment of retail therapy. Norton believes that the reason we love money and spending so much is because we can measure our own worth. “One of the best things and the worst things about money is that it is so easy to count. The reason people focus so much on it is because it allows them to know if they’re doing better but even more so if they’re doing better than someone else. So if I want to know how I’m doing in the world, I would look at not just the money I have but the size of my house and things like that.”
This report from NatCen shows that in Islington, this is definitely a problem. They found that young people in debt felt “pressured to prioritise spending on social life and appearance” over clearing debt. According to Michael’s theory, this is competitive spending leading to debt.
Michael even suggests that the new obsession with ‘followers’ and ‘friends’ on social media plays into this. “A lot of people spend an enormous amount of time trying to get more friends on Facebook because they feel that they have more friends than they used to and that they have more friends than other people.”
Listen to the interview:
Make yourself less competitive; save more money
We also spoke to Brent Zeller, the author of Evolutionary Education: Moving Beyond Our Competitive Compulsion, in order to find out more about competitiveness. Zeller has spent 36 years developing his ideas on how to reduce the competitiveness in society that leads to “people becoming adversaries of each other and opponents to personal goals”. Below are some of his tips to help you be less competitive and consequently save some money!
If the idea of being less competitive appeals to you, have a look at the map below. Yoga, meditation and swimming were the three top non-competitive activities voted by readers. Find out the closest places to St John Street where you can do them:
Follow Michaela Carroll on Twitter: @MickeyJourno