Computer generated projections of a man as he ages.

Research

How to Save: Imagine You’re Older

Economists’ explanation for why people don’t save for retirement is that they “discount” the future, placing a higher value on today’s pleasures. Educators argue that people don’t have the information they need to save.

Psychologists have a new theory: people can’t relate to their older, retired selves.

To test this theory, Hal Ersner-Hershfield and collaborators at Stanford University devised a way to help their research subjects – college students – identify with those nebulous figures out in the future, their older selves. When they did, the subjects were more likely to save money.

The national media have already covered this research. But it’s worth sharing as The Journal of Marketing Research plans to feature it in a special November issue on financial decision-making. The experiment demonstrates the contribution by psychologists to our understanding of how we handle money.

The researchers fitted students with a helmet and goggles and hooked them up to virtual technology in a lab at Stanford University, where Ersner-Hershfield was earning his Ph.D. in psychology at the time. They were then asked to walk around the room and explore a parallel virtual room. As each came to a mirror, he or she looked in.

Half the students saw a young avatar’s face like their own. The other half saw virtual faces as they might appear when they are age 65. Through the magic of computer imaging, their facial structures had aged and hair colors had grayed.

After leaving the virtual room, each subject was asked to allocate a $1,000 windfall among four options: buy a gift “for someone special,” invest in a retirement fund, pay for a “fun and extravagant occasion,” and put the money in a checking account.

Those who saw their 65-year-old selves in the mirror put an average of $172 in the retirement fund – more than double the control group‘s $80 average contribution.

Laura Carstensen, director of Stanford University’s Center on Longevity, said the virtual aging findings, which she coauthored, confirm that human beings aren’t hard-wired to think far into the future – or to plan.

Throughout human history, our ancestors were constantly adjusting to short-term uncertainties, such as whether their seeds would grow or they could hunt down an animal for food, she said. Long-term planning, she said, “doesn’t come naturally to us.” The result: people are emotionally detached from saving for retirement – “as if they’re planning for strangers,” Carstensen said.

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