Imagine I earned $100 a week, and out of that, I saved 2 bucks. That's what we do in New Zealand ` we save 2% of our income. Yet the best savers in the world, the Chinese, save much more than us ` an impressive 30%. So is there a way to understand why we don't save very much? And with a few tricks, could we save more? Copyright Able 2017 And I feel, like, about savings (INHALES SHARPLY)... the same way I would feel about having to pay a power bill ` very reluctant. (CHUCKLES) You start putting money away, and it's awesome, and then it starts to get bigger and bigger, and you start looking at it, and then you start thinking, 'Well, it's sitting there. Why am I saving?' which is why I think we don't save so much, (CHUCKLES) unless we have something to save towards, cos then it works. (SIGHS) I had a conversation with my son one time. He wanted something, and I said, 'I don't suppose sitting in and saving up's an option, is it?' And he went (IMITATES HEARTY LAUGH). He just laughed at me. Saving is not only boring; it actually makes us feel unhappy. Hopefully I can prove this with an experiment. First, I'm going to give kids a lollipop and see how happy it makes them. Hey. Uh, that's for you. That's for you. This is for you. Out of 10, how happy do you feel right now, if 10 is really happy and one is not happy at all? 10. 10. 10. They seem really happy with their lollipop. Now I'm going to give another group of kids two lollipops. Here you go, Ben ` two lollipops. You get to have two lollipops. Uh, here. These are yours. How happy do you feel right now? 10. Nine. Seven. And why wouldn't you be happy with two lollipops? I'm gonna take one lollipop away. But what happens when I take one away? You only get to have one lollipop, not two. How happy do you feel now? Five. You're actually only gonna get one. How happy do you feel now? Five, cos you gave me one, but you said you'd give me two. We have two groups of kids that both ended up with just one lollipop, but the ones that didn't have a lollipop taken off them were 10/10 happy. The other group that had a lollipop taken away were only half as happy. We really hate losing something, and, sadly, the psychology of saving feels exactly like the kids that lost a lollipop. Now I get less sugar. (CHUCKLES) Maybe we'd be happier if we never saw the money we wanted to save, if it just went straight to a savings account. But who can be bothered sorting that out? This is me right now. And this is me in the future. Yep, the cowboy look is, uh` it's back. To be honest, I really don't spend much time thinking about him. That's the main cause of our problems. One major issue is our love of instant gratification ` that's getting the reward now and paying for it later. He loves eating cronuts, but it's me that gets the jelly belly. It's the same impulse that gets us buying on a credit card when we don't have the money. Now, the other major issue is delayed gratification, something a lot of us humans aren't really into. It's when we have to pay now and future us gets the reward. It's doing things like exercising and flossing or the worst one, saving. So is there a way to make that guy think of me more? Well, maybe there is with a contract. It's called the Ulysses contract, named after an old Greek dude... BOTH: ...who tied himself to a mast to avoid being lured into the sea by beautiful singing. In real terms, it means locking yourself into something you don't want to do, something like saving or maybe even exercise. Go on. Star jumps, you cronut-eating monkey. So let's see if we can take this Ulysses contract into the real world. Can we help some people that are looking for some motivation to get to the gym more often? So, your goal is to go five times a week for the next month, yeah? Yep. Here's what's gonna happen. You're all going to give me $100, and for every day that you don't come, uh, I'm gonna take $5. But here's the thing ` now, at the moment, this is just loss aversion, because they think they're just going to lose $5. But we're gonna make it even worse than that. What I'm gonna do is I'm gonna take that $5, and I'm gonna give it to something that you personally, uh, really don't wanna give the money to ` so that either might be a politician or a cause. All right. Let's go. I'll take the $100 now. Um, who am I going to be giving $5 to every time you miss a gym session? Cats to Go. What's Cats to Go? Cos that sounds almost like a nice thing. No, Cats to Go is an organisation that thinks all cats should be eradicated from New Zealand. And I'm a big cat lover, so I don't agree with that. It's almost like if you miss a gym session, a little cat somewhere will die. I won't miss a session. I will take your $100. Who or what will I be giving $5 to if you miss a session at the gym? You won't be, but Wilson Parking in the city. (LAUGHS) All-important question ` for every session that you miss, who will I be giving $5 to? The Church of Scientology. It's going to go towards my flatmate's cigarette-and-wine fund. As I'm English, I'll be supporting the Lions. So we'll give it to the All Blacks. Right. The Wallabies and the Kangaroos. Not the animals; the teams. Rugby union and rugby league. And that would be terrible? That's not gonna happen. We'll find out later if this is enough motivation for our present self to do something nice for our future self. But now we want to look at another way our brain works against our intention to save. It's your birthday, and Grandma has sent you a birthday card. Inside, a crisp, new $20 note. Now, do you think, 'Great! That'll pay for electricity or perhaps milk or toilet paper'? No ` you'd file that into a mental account, to be spent on something indulgent, like maybe four cronuts. And that feels like the right thing to do. Mental accounting means that money is sorted in our brain in different places. This experiment will prove how we misfile information in a way that makes us feel better about ourselves. I want to show you a strange mental account that we all have. I'm gonna ask members of the public to jump into Nigel's Savings Booth. I'm gonna jump into my booth back there and ask them three very simple questions. Everybody who enters the booth has bought something on sale today. Hello. Hello. (CHUCKLES) What did you buy today? (CHUCKLES) Protein powder. I bought some nappies. I bought two glass domes. Girl Guide biscuits. Drawers. Yeah, we bought some drawers today. Um, jewellery; food; chocolate. How much did you save buying it on sale? I saved 50%. They were originally $100, and so I walked away with $50. It was a saving of about $8, I think it was. How much would you have saved today when you bought that stuff? About $30. Ooh, um... I think it was, like, $150 off. They were having a special or something. $5. Are you planning to go home and put that $50 that you've saved into a savings account? No. LAUGHS: No. Didn't really think of it. (LAUGHS) Um... No. (CHUCKLES) (LAUGHS) Yeah, it's` it's... Probably spend it! We only just got engaged, um,... Oh wow! ...a few days ago. Oh, congratulations. We've also got other priorities too. Are you planning to go home and put that $8 that you've saved into a savings account? No. (CHUCKLES) But I probably should. That's a very human thing, isn't it? Like, on the face of it, you've saved $8, but none of us ever go home and put it into a savings account, do we? No, that's right. We just tell ourselves that we have. We tell ourselves we've saved it, but what do we do with it? Yeah. We love this feeling of saving, but it's totally unfounded. It's a neat trick your brain plays, making you feel great about saving, when, in fact, you've done the exact opposite. You're out and about, actually spending money. Next, we find out whether our gym-goers were motivated to exercise more than usual. And, uh, Jason. So, you came once. (LIGHT LAUGHTER) 1 It's time to check in back at the gym. Let's see if our gym-goers were motivated by the contract they had with me. They'd given me $100, and every time they didn't come to the gym, I subtracted $5 to give to someone that our exercisers really didn't wanna give the money to. So did the Ulysses contract work? All right. So, the, uh, results are in. So, Briony, you came 20 times, uh, met your target, which meant no cats died, and you get the full $100 back. And, Sheena, a grateful nation will thank you, cos you came every single time, and so no money goes to Wilson Parking. And, Mairi, $2.50 to the Wallabies, and $2.50 to the Kangaroos because you only missed one session. Jess, your flatmate's party fund gets nothing because you met your target. You came 20 times. You get all of that stuff back. (CHUCKLES) If you hadn't had that Ulysses contract, how much would you have come, do you think? I wouldn't have come five times a week. There was definitely a couple of times that it made me come because I was, you know, not wanting to give her my money. (CHUCKLES) And, uh, Jason. So, you came once,... uh, which means the Church of Scientology will get $95. I started off with good intentions, but it seems it wasn't quite enough to get me to go frequently. $5, perhaps, wasn't enough to force me over my, sort of, comfort zone If we upped the stakes, and each time you didn't come, you gave $50 to Scientology? I think that would make a pretty huge difference. (CHUCKLES) So, Scott, uh, you came 13 times, uh, which is pretty good, but it still means that $35 goes to the All Blacks. How'd that whole Ulysses contract thing work for you? Uh, pretty good. I wanted to come to the gym more, so it was the kick up the ass I needed. There was many a time I was lying in bed, thinking, 'I could not go to the gym.' As much as it's only 5 bucks, it was still enough of an incentive to get me. And it's possible to use the psychology of the Ulysses contract in other areas of our life as well. Would you say you're a good saver or...? Nah, terrible. So if you were to set up a bank account and say, 'Right, I've gotta put in an amount of money every week, 'and each time I don't, I'm gonna give $10 to the All Blacks,' would that help you to save? Oh yeah. It's time for me to hand over Scott's money, though. The deal is a deal. Hello. Hi. I've got $35 here from Scott, who's English. Could you pass that on to the All Blacks? Sure. No problem. Thank you. Thanks. I don't think even this contract would work for me. I think the remote control is one of our greatest inventions. The harder something is to do, the less we like it, so if you make it easy, almost brainless, we're much more likely to do it. Being lazy saves us energy. NIGEL ON TV: '...twice as many as when I switch.' God, I hate his little frog voice. When the batteries are flat, it's a crisis. Can someone turn the telly down? Our brains are naturally lazy. We'll take any shortcut offered to us. Some companies are trying to make even easier ways for you to give them your money. I don't even have to call a taxi any more. I just open up an app on my phone, a car turns up, gives me a ride, and I pay without even thinking. Then I just climb out and say goodbye. Perhaps we need something as frictionless as this when it comes to saving. In this next experiment, we should see how we want to avoid a bit of friction when it's put in our way, and that means we sometimes make decisions about money that aren't in our best interest. What difference does friction make on saving? Behind me, I've got two doors. Behind this door is $5. You can have it now. Easy. Behind this door,... there's $20, but you have to perform a slightly difficult task, and you have to wait for a week. So let's see what people do. So it's do nothing and get $5 now ` instant gratification ` or delayed gratification of $20 in a week's time with added friction between you and your $20. What would you like to do? Now. WHISPERS: Other way. Oh. (CHUCKLES) It's that easy ` McKenzie gets her instant gratification. (CHUCKLES) McKenzie, you went for the $5 now. Yeah. Just cos it's easy, and it's here, and it's like, 'Uh, I just want the 5 bucks.' Yeah. Nice. OK. Sounds like the 'later' door's the way to go. Mark has decided on the later door to get the $20. Only then does he discover the friction I've placed in his way ` climb into the fountain, wade to the fish and bring the green disc in its mouth back to me. So the question is ` is it worth $15 to get wet? Yeah. No, it's not. All right, well, then, uh, you're welcome to go through the now door and take your $5. OK. Thank you. Thank you. The friction has put off our first two participants, but then the tide turns. I'll take the later door. I'll go with the later. I'd go later. Is the friction giving people second thoughts, though? (CHUCKLES) I'll do it. I'll do it. The $20 seems to be motivating people. Maybe these people are good at saving, not put off by friction and delayed gratification. So, do you have, like, a financial plan? Do you think ahead about all that stuff? Oh, yeah, absolutely. My partner and I are actually thinking about buying a house. You're kind of more focused on that long-term goal rather than the stuff that's straight away. Absolutely. Why did you not go for the $5 now? Like, that's now. Yeah, but` No wet feet ` get it now. It's a bit more boring, isn't it? So, would you say that you're good at saving, Tracey? No. (CHUCKLES) (LAUGHS) I'm not good at saving. Why do you think saving is so hard for people? For me, I want the instant gratification. I wanna spend now. Right. I wanna enjoy things now. But you went for the delayed gratification of the $20 in a week's time. So maybe... My` My husband was watching. (LAUGHS) That's completely the opposite to what I would have expected, and it's also the opposite of what the research would predict. People should have gone for the $5, but instead most of them went for the $20, even though it comes a week later and they had to do a task. And I guess what that suggests is that if you make the friction fun, people will push through it, and they'll get to that long-term goal. Next ` can our Nudge Unit try and make someone save for their long-term goal? Tell her this is the next level. 1 This is what saving feels like to me ` money going into a big hole, never to be seen again. But another accurate name for savings is 'spend later money'. Savings are there to help us get the life we want in the future. (UPBEAT MUSIC) This is what my savings turned into ` I bought myself a dog. Savings are there for spending on things that will make us and those around us happier. And so the more accurately you picture what you're saving for, the more likely you're going to want to save that money. Sarah has a savings problem. She does have some things she wants for her and her three boys, but she hasn't really made any plans. So, instead, she can't help frittering the money away at the op shop where she works. I definitely spend too much in there. And, I mean, it's a bargain, so I can buy more for less. So, when you buy stuff at the op shop, does it feel like you're saving money? Because it's an op shop, so you think, 'It's much cheaper than other places.' I would say so. Yes. Do you have a savings plan or specific goals? In a word ` no. I have aspirations to save. And are there any, kind of, like, big dreams? My 16-year-old, he went to a music festival last year, and so this year, I'd like to help him get to that again. And medium-term goals? We're looking at a` at a family trip to visit our family in Brisbane. What about long-term goals? I have a` a plan for a dream trip, taking the boys to the States. Uh, we haven't been on a family trip. So when you buy things at the op shop, do you ever stop to think that that is kind of taking away from those longer-term goals, those savings goals? I think I don't really think of savings at that point. Sarah sounds like the perfect candidate for our Nudge Unit. My hand-picked undercover team can help her save for her dreams. Go, go, go! The Nudge Unit are ready to do anything, at any time, to sort out anyone's money worries... ...by giving people a little nudge in the right direction. (LAUGHS) All right, team. So our mission today is Sarah. She wants to save more, but she finds it really hard because she comes in here and she buys stuff. So what we're gonna do is make it really easy and make the choice really clear. So, what I want is a random shopper and a checkout. Let's get it done. Sarah even shops here on her days off, and our team have replaced the normal staff. OK. Standby. Here she comes in five, four,... three, two,... one. There she is. Hi. How are you? Good. How are you going? Good. Sarah seems suspicious of the new worker. Is Sandra here today? No. She's actually just popped out. Just tell her that you're filling in for Faye. I'm just filling in for Faye at the moment. Oh, OK. For our Nudge plan to work, we need her to buy something. Are you looking for anything in particular? I was looking at a jacket that I saw. She has to buy something. Do you like dresses? No. I'm not really a dress person. Maybe today she won't actually spend her money. Those picture frames are in a nice set. And they're only $1.50. (CHUCKLES) I might actually get them. Those ones come to $4.50. It's time for Sarah to stop frittering and actually start saving. So, there's this EFTPOS machine here, or we also have another EFTPOS. That's actually for a savings account for your family. Oh! OK. You can either buy your photo frames with this EFTPOS or put the $4.50 towards your savings account for your family. Oh. Sarah seems confused by this turn of events. I think I'll use this EFTPOS machine today. Success! Sarah has saved her first $4.50. Great. Now tell her, 'This is the next level.' So, we go to the next level if you want those frames. I think Sarah's on to us, but she seems willing to play along. After all, she's saving for her goals for the first time ever. How much do you think these frames would be new? At least $40, $50 each. Like the people at the mall from our earlier experiment, Sarah thinks she's saved money ` around about 100 bucks. But can the Nudge Unit push their luck and convince her to turn that imagined savings into actual savings by using our specially equipped EFTPOS savings machine? Would you wanna do it for real now, then? She's hesitating. Uh, yes. Yeah? We've done it again. Sarah is now on her way to saving for the dreams of her boys and herself. But it looks like the game's up, so the Nudge team give Sarah her very own savings thermometer. For the nudge to work long-term, it's vital Sarah can visualise her savings goals. In just a few minutes, Sarah's saved enough for her boy's concert tickets. Next stop ` Brisbane. But with saving, there's also a downside. OK. That's really good, but tell her that she doesn't get the picture frames, because you need to remind her that that's what saving's about ` sacrifice. Unfortunately, you can't get the photo frames today. That's what savings is. OK. All right. It's time to see how Sarah feels about our savings nudge. Hello, Sarah. So, that was us. I thought as much. Now that you've actually saved that money, like, what does it feel like now? Oh, it feels good. (CHUCKLES) And, you know, it is so easy. Now Sarah is on her way to achieving one of the hardest things to do with money ` saving it. The problem is our brains have an automatic aversion to saving. It feels like chucking money in a hole, but the truth is saving is how you get to the cool stuff. So choose a goal you get excited about now and remove friction. Make saving something you can do without even thinking. Watch those mental traps. 50% off isn't saving anything; you're still just spending. And watch that mental accounting. Money is money, no matter how your brain tries to spin it.