Hickock & Boardman Retirement Solutions

Does Language Dictate Savings Rates?

Thu, 04/02/2015 - 08:09 -- Shaun.King

Most students of the English language remember learning all of the grammatically correct ways to write and speak with the proper tense. Year after year, and teacher after teacher, we learned that “I school tomorrow” should be “I will attend school tomorrow.”

Interestingly, some behavioral economists think a distinction between the past, present and future in the English language can negatively impact savings rates. The time separation may make the future seem far off and unconnected to the present.

“Every time you discuss the future, or any kind of a future event, grammatically, you're forced to cleave that from the present and treat it as if it's something viscerally different,” explains Keith Chen, an associate professor at UCLA, on a recent NPR TED Radio Hour interview.

Discussing his study, The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets, Chen says his findings show that people who speak a language equating the present and the future as one tend to save more for the future.

Chen says people who speak about the present and future identically, or a futureless language, will retire with 25 percent more savings than a future language speaker. In his studies comparing similar demographics, Chen also found that futureless speakers are more likely to save money in general on a yearly basis than a future language speaker.

He says a future language “makes the future feel like something more distant and different from the present.” Chen suggests that if we can find ways to make the future seems less abstract or far off, than future language speakers in the U.S. might save more for retirement.

Chen cites one study where a psychologist had a company show employees either a current or a future image of themselves when filing out 401(k) enrollment forms. The employees who saw a computer-generated image of their face in the future were more likely to pick a higher contribution rate than the employees who saw a present day image.

Varying the expression on the future face also had an impact. If the future self was happy rather than sad, employees saved more.

While some people question Chen’s methodology and suppositions, the findings are still fascinating and worth considering. With many people still very unprepared for future retirement, the retirement plan industry and employers must continue to search for potential ways to improve the savings rates.

To hear more of Keith Chen’s theories, be sure to listen the NPR TED Radio Hour interview.

The opinions voiced in this material are for general information only and are not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or advisor for guidance on your specific situation.