Yet new research from UBank reveals there’s a science behind spending & saving and we can re-wire ourselves to think differently.
Australians are spending $31 billion in savings annually* as short-term thinking, poor planning and impulse spending habits threaten long-term financial security.
According to new research we’re launching today, 2 million Australians have less than $1,000 in savings and a further 35% do not have a dedicated savings account.
We also found 61% of people are living without a dedicated savings plan and 46% without a weekly budget.
In addition, more than half of Australians (57%) are dipping into their savings regularly for ad-hoc special purchases and bills, amounting to $2.6 billion nationally drawn from bank balances each month. For 1 in 3 surveyed (35%), all of their money is spent by pay-day.
The flow-on effect is a cycle of debt for as many as 1 in 4 (27%) who claim to have ‘a lot’ of debt, including 8% who are not in control of their debt at all, and admit it’s now impacting their wellbeing.
More money is being spent on immediate rewards
Consumers tend to prioritise short-term gains with the research indicating that 45% of respondents confirmed that, more often than not, their money is being spent on items or experiences that make them happy.
So while almost one quarter (22%) of Australians are actively trying to save, the pursuit of immediate reward is proving a frequent distraction; creating a habit where, as soon as money comes in, it’s already on its way out.
UBank introduces the Science of Spending & Saving Experiment
To uncover the reasons for this widespread behaviour and understand why people aren’t prioritising decisions that benefit their future, UBank conducted a unique study in partnership with Dr. Phil Harris, an Honorary Fellow at the University of Melbourne’s Faculty of Business and Economics and an expert in Consumer Neuroscience at Nuro Research.
Lee Hatton, CEO of UBank commented, “We wanted to understand the mindset behind spending and saving at a deeper level and ultimately see if we can be re-wired to think differently.
“We tested the hypothesis that so many Australians are favouring immediate rewards over long-term gains because they’re actually quite disconnected from their future selves.”
To do this, UBank worked with Dr Harris to capture the reactions of 50 participants, aged 22-50, as they responded to a series of financial decision-making tasks while Electroencephalography (EEG) technology read brain wave activity via electrode sensors were placed on the scalp.
The experiment firstly tested responses to common financial scenarios, recording how the brain reacts to receiving and spending money.
The next phase of the experiment saw participants confronted with an image of their ‘future selves’ – a digitally manipulated photograph aged by 10 to 20 years – and then they were asked to complete another round of financial decisions as brain activity responses were again captured.
Watch the short video to hear how the participants' mindset changed.
The majority of people change their mindset towards money when they see their future self
Dr Harris explains, “Humans are wired to want rewarding outcomes immediately, so it was very interesting to conduct this experiment. The results found that the people were significantly more likely to choose to save money when they became more in touch with their future self.
“After interacting with visualisations of themselves later in life, 72% of participants shifted their mindset towards wanting to save versus spend money.
“The experiment also found that when we measured brain activity after the participants had met their future selves, there was a 150% increase in attention paid to the moment of choice between saving cash versus spending it. This shows that when we are in touch with our future selves, we invest more mental effort into creating a positive financial future rather than wanting to have immediate rewards.
“When putting participants through the first round of financial scenarios, the results showed that it took a large sum of money to tempt people into depositing money versus spending it. But once they engaged with their future self, it took a significantly lower amount to tempt participants into wanting to save money.
This shows that while our natural default setting is to seek immediate rewards, there is a way to train your brain to become financially smarter.”
UBank announces new technology, tips to help Australians spend more wisely
Lee Hatton, CEO of UBank said, “We conducted this experiment because we want to help Australians be smarter with their money. And, with these insights we’re now creating new technology that will actually help our customers manage their financials more closely to achieve their goals.
“Using artificial intelligence (AI), we will create an experience within our internet banking platform to help customers plan for ‘regular’ expenses such as monthly phone bills and also ‘irregular’ costs like car insurance, that need to be paid less frequently.
With money set aside for these kinds of expenses, customers can then manage their daily spending allowance and savings plan more effectively, similar to the way fitness apps support wellbeing.
“Our goal is to help our customers take control of their financial positions more closely so they can achieve their bigger dreams, including home ownership. We expect to launch this technology in late 2017.”
Based on the results, we've created some exclusive tips that you can use in your everyday life to put the findings to use and manage your finances.
* Research is from a June 2017 report conducted by Galaxy research with more than 1,000 Australians. Among the 73% of Australians who dip into their savings, the average amount that they take out of savings per month is $235. Extrapolating this to the Australian population equates to 11.07 million Australians taking out $2.6 billion from savings per month with a total of $31 billion per annum drawn down out of savings.