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How Cyclical Thinking Might Help You Save Money

The good news: researchers have found a way to make people save money. The bad news: it requires a complete rewiring of how human beings perceive their existence.
(Photo: Vasiliy Koval/Shutterstock)

(Photo: Vasiliy Koval/Shutterstock)

Whether it's a lack of decent-paying jobs or an advertising-induced confusion between wants and needs or a propensity to spend without simultaneously practicing the refined art of saving, many Americans reside in financially precarious conditions. National household debt, for example, is on the rise, with consumers currently owing $11.3 trillion. Furthermore, nearly half of the country's occupied homes are one monetary disaster away from poverty.

Then there's the growing problem of student loans. According to the Los Angeles Times, outstanding student-loan balances increased $33 billion to $1.03 trillion in the third quarter of 2013, and a record 12 percent of loans were delinquent by 90 days or more.

And even though a Gallup poll conducted in early November found that the public planned to spend less this past holiday season than in 2012, Reuters reported in late December that total holiday spending rose 3.5 percent.

Cyclical thinking encourages people to start saving immediately, no matter the circumstances, whereas linear thinking allows for ongoing delays in putting something aside.

Perhaps some people, while contemplating things in their monetary abyss, tell themselves that their situation will get better tomorrow, or maybe the day after that. It's 2014, after all, and with a new year comes yet another chance to balance the personal budget. No more Trenta lattes, they declare. No more purchasing of shirts that merely gather wrinkles in the dresser. No more buying of color bombs for Candy Crush. Fiscal responsibility, here we come!

New research, however, suggests a central reason people don't bother storing cash stems from the prominent belief that the future will be different from the past, as opposed to just more of the same. In a recent article published online by the journal Psychological Science titled "Saving in Cycles: How to Get People to Save More Money," co-authors Leona Tam from the University of Wollongong in Australia and Utpal Dholakia from Rice University argue that instead of thinking about time in linear terms, where a bank statement reporting robust numbers floats out there somewhere on the not-so-distant horizon, Americans who struggle with saving should start imagining that events recur without end. If that's a tad bit confusing, just picture Bill Murray's predicament in Groundhog Day.

Using three studies to test the outcomes of linear thinking versus cyclical thinking, Tam and Dholakia found that the participants who embraced the latter method produced an average of 74 percent higher savings estimates and saved an average of 78 percent more, too. That's no small feat, considering the rather large problem.

Essentially, the researchers assert that cyclical thinking encourages people to start saving immediately, no matter the circumstances, whereas linear thinking allows for ongoing delays in putting something aside, however meager. Why start feeding the savings account now, the thinking goes, when there's always later?

In sum:

While most people may not think about how much they will save during specific future periods, this study demonstrated the distinction between saving now and saving in the future and the fact that these two decisions are unique and affected by implementation planning and future optimism. Practically, people can make savings decisions at any time, and we surmise that deferral under the linear savings method may continue unabated as the person’s distant future becomes the near future and eventually the present.

The co-authors conclude by suggesting that their findings can be "easily implemented" by personal finance counselors, administrators, and teachers in order to start helping people save money and foster beneficial habits.

While cultivating cyclical thinking in a lab setting might be easy, permanently rearranging the average American's understanding of how time works is a monumental endeavor. Our sense of life moving from past to present to future with multiple causes and effects occurring along the way is both rooted and reinforced in many of our philosophical, religious, and cultural traditions, not to mention our everyday experiences. But if saving money for anything from planned retirement to unexpected medical emergencies is downright impossible for many households across the nation, maybe a fundamental shift in comprehending how time works won't be so hard in comparison.