Maybe You’re Terrible at Saving Money Because You Only Vaguely Know What You’re Saving It For

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Retirement Savings Jar Of Coins And Banknotes
Photo: TonyIaniro/(C)Tony.Ianiro

Behavioral economist Dan Ariely has made a career out of studying and writing about human irrationality, and if there is one thing that makes people act particularly irrationally, it’s money. Ariely, who is a professor of psychology at Duke University and the author of best sellers like Predictably Irrational, just received a $7.9 million grant from MetLife to fund the Common Cents Lab, which will focus exclusively on the psychology of money — and, more specifically, how to apply that research to help low-income families. 

Ariely spoke to Forbes this week about the grant, and the conversation turned toward a ridiculously simple way anyone can become more motivated to save money: Know what, exactly, you’re saving for. Okay, this seems incredibly obvious, true. But Ariely told Forbes writer Elizabeth Harris about research that shows when parents open a savings account specifically for their kids’ college tuition, their kids actually are more likely to go to college. But it’s not simply opening the account that seems to make the difference. Ariely explained:

[T]he name gives it a goal. So imagine that you’re poor and you don’t have much income and I open for you an account that is called my future home and I open you another account and it’s called my future business and all of a sudden once a month you get a statements and you say, ‘I have an account – I’m working toward that.’

In other words, it’s a subtle but meaningfully different way to think about your money.