According
to research by Sarah Newcomb, a behavioral economist at Morningstar and
HelloWallet, people who are future-minded and think ahead have more savings
than those who do not. In addition, two simple areas of inquiry can accurately
gauge the status of a person’s financial health:
- How far in advance do you make plans?
- How much control do you feel that you have over events that happen in your life?
Studies
have shown that “time is money.” In
other words, people who focus on the future and feel that they create their own
financial destiny tend to save more than others for retirement and other
financial goals. When people focus on the future, they tend to be less
impulsive (e.g., spending habits), regardless of their level of financial
literacy.
Newcomb
found that the strongest predictor of good financial decisions is not financial
literacy but, rather, a focus on the future. High levels of impulsiveness and
materialism, on the other hand, were associated with poor financial
decision-making. For short-term thinkers, risk is not as painful as waiting.
In
addition, Newcomb’s research found that “power
is happiness.” Empowered people are financially happier than others.
Conversely, people who don’t feel in control of their personal finances have
been found to exhibit negative emotions about their financial status up to
those earning a six-figure income.
Newcomb’s
research, which is summarized in her book, Loaded,
has found that, the farther away something is in the future, the less people
care about it. The secret to fostering future-mindedness by yourself and others
is to trick your brain to think that “the far away is close.” When this
happens, people care more about the future because the “Here and Now” is clear
and intense while the “There and Later” is vague, abstract, and unemotional.
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