Is your bank balance a reflection of your genes?
To achieve a reasonable earning capacity and be a good saver, many maintain the view that you need to study hard at school and achieve a level of professional success in your chosen field.
Researchers are now exploring whether some of us have a genetic advantage when it comes to financial matters – or whether our behaviours and attitudes (often instilled by our parents) ultimately determine if we will form saving or spending habits.
Like A Kid With Marshmallows
To understand whether our saving behaviour is determined by our genes or environmental factors, Stephan Seigal, Associate Professor of Finance and Business Economics at the University of Washington Business School and co-author of The Journal of Political Economy: The Origins Of Savings Behaviour, asks a number of relevant questions.
Siegal explores a study by American psychologist, Walter Mischel, which sought to understand the age patience and self control develops in children. Known as the Stanford Marshmallow Experiment, the study provides children with two options:
- Eat a marshmallow immediately; or
- Wait 15 minutes and be rewarded with 2 marshmallows.
Later in life, the children who were able to wait longer for a reward tended to outperform children who ate the marshmallow immediately in a range of important life success measures. For example, children who exercised patience in the marshmallow experiment achieved better SAT Scores, higher educational achievements and a healthier body mass index.
It makes sense. If you are patient (able to exercise impulse control) and can reconcile the long term consequences of short term behaviour you are more likely to work hard to achieve goals – increasing your chances of a successful, high paying job later in life. An impatient person is easily frustrated and wants quick results.
If you were given the option of spending $500 today or $1000 in 3 years time, what would you do? The answer will depend on a range of personal circumstances, however, a sensible choice would be to wait and receive $1000 in 3 years which you can then put into a high interest savings account to earn more money.
Although genes play a huge part in who we are, I believe our everyday habits and life experience have the biggest impact on our capacity to save.
The determining factor is you!
Wealth-building is as much a skill as driving a car. To be any good, you need to commit to changing your attitude and behaviour from a spender to a saver.
Here are some ways to get started
Work out your earn-to-burn ratio. Start by working out your earn rate by making a list of your yearly income (salary, dividends etc). Then work out your burn rate by listing your yearly living expenses (including holidays, entertainment, food, rent or mortgage repayments). When your earn rate exceeds your burn rate, you are in a sound financial position to save money.
If, however, your burn rate exceeds your earn rate you may wish to consider:
- Finding a second source of income (for example, through a second job)
- Finding ways to cut down your expenses
- Developing a skill that will attract greater remuneration at your current job
- Chasing a promotion
Some other effective strategies you can use today are to:
- Set up an automatic savings plan with your bank. This will automatically transfer a predetermined sum from your salary and place it into a high interest savings account. Start with as much as you can afford and increase that amount whenever you can.
- Collect loose change and deposit this into a high interest account. You will be surprised how easily it adds up and makes a big difference.
- When you receive a pay rise at work, try to use the extra money to reduce your debt or to increase your savings. DO NOT fall into the trap of buying new things you do not really need.
In conclusion
All these tips are effective actions that you can take today.
The immense benefits of taking a proactive approach to your savings can free you to pursue things that you love. While the risks of not taking any action can leave you living life bill to bill.
Do you think your capacity to save is influenced by your genes? What everyday strategies do you use to save money? Share your stories in the comments section below!
Further information
For more information on saving habits and genetics, listen here.
