The “Present Bias” Trap: Why your future self gets the short end of the stick
Ask a Financial Advisor: Hannah Farrow
The 'Present Bias' Trap: Why Your Future Self Gets the Short End of the Stick
In my 20s, it never felt like a good time to save: I’d start a savings account and then a friend would have a wedding in another state or I’d need a new suit to feel confident for job interviews. Now I’m in my 30s, and isn’t this the right time to buy non-Craigslist furniture and see my parents while they’re healthy? But we’re also thinking about getting pregnant next year, and that’s also not going to be the right time to save. Why is this hard?
Signed - Living in the Now
Dear Living,
You are facing down one of the most pernicious forces in personal finance: present bias.
Present bias is our universal, deeply-ingrained tendency to prioritize immediate rewards over future benefits.
Why would we have a trait that causes us such harm? Back in the day, optimizing for now made sense for survival. It wasn’t possible to “save” most types of resources, and it wasn’t certain you would be able to maintain possession of them even if you tried. Imagine a highly-truncated lifespan—living only until your 30s, focused mostly on having and protecting children. Most day-to-day concerns involved food, security and shelter. It makes perfect sense that we’ve evolved to take what we can, when we can.
But the world has changed. Our lifespans have increased dramatically, and most of us can be assured we will keep what is ours; someone can’t come along and just take it from us (except scammers; don’t get me started on scammers).
So how do we take action when something is fundamentally unnatural? Sure, there’s guilt trips and self-flagellation. But research has also provided some interesting — and surprising — hacks:
How to hack your brain
Overcoming present bias requires a combination of cognitive strategies, technological tools, and financial education to help us better connect with and prioritize the needs of our future selves. Some hacks to make the future more real:
See your future self: the “aged photo” technique, which involves seeing what you are likely to look like in the future, has been shown to increase retirement savings by creating a stronger emotional connection between our present and future selves. A simple Snapchat filter would serve if you want to try this out on your own.
Speak with your future self: In a unique twist on the aged photo technique, MIT scientists have developed an innovative AI that allows users to engage in simulated conversations with their future selves, potentially revolutionizing how we approach long-term financial planning by making our future needs and desires more tangible and immediate. The research paper noted, "Many subjects reported feeling increased empathy towards their future selves, with one participant commenting, 'It was like talking to a close friend who I wanted to help and protect'." If you could talk to your 70-year-old self today, what questions would you ask? What response would you expect? Maybe someday you can check your answers against your personal AI assistant, but until then, think of how to make your future self and future life more tangible.
Create a physical reminder of your future self: A 2016 study illustrated that having a physical token in your environment representing your savings goal helped boost savings rates. What token might work for you? Where would you display it? Some ideas to get the ball rolling:
Engraved metal cards: Similar to business cards, but made of durable metal with retirement goals or motivational messages.
Flat gemstones or polished rocks: Natural objects that can symbolize growth and long-term value.
Laminated wallet size photos: Small pictures of dream retirement destinations or activities.
Personalized tokens or chips: Similar to poker chips, but customized with retirement dates or goals.
If you think an objective perspective could be helpful for you to set and stick to savings goals, a financial advisor could be a useful partner to set your feet on a new path. We talk with all of our clients about cash flow and long-term goals; we respect your current needs and personal values while also helping you put numbers against long-term tradeoffs. If you’re curious how this could work for you, we’d love to set up some time to speak.
Author: Hannah Farrow
Date Published: 11/07/2024
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Wealth Map Meeting: Think of it as a try-and-buy. You sync your accounts with our financial planning software; we then go through one-by-one and discuss each one. At the end, we share an illustration of your household net worth, which is yours to keep.
If there’s a good fit, we can make it official after this meeting, and your data is ready to go. If it’s not the right fit today, we hope you leave with a positive impression of our firm, and we’ll be on your list if your needs change over time.
We keep the process pretty calm:
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