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Listen Up: How Language about the Future Affects Our Savings

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March 23, 2015
Listen up

Did you know that the way you talk about the future may impact how much money you save? It’s all in your language. Speakers of languages that require the use of future time references tend to save less than people who speak in the here and now.

Behavioral economist Keith Chen, who has taught at both the UCLA Anderson School of Management and at Yale School of Management, explains that future markers in language include words like “will” or “is going to.” So, for instance, English speakers who are talking about a weather forecast might say “It will snow tomorrow.” Users of other languages, including German and Mandarin, would say “It snows tomorrow.”

In his paper, “The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets,” Chen demonstrates that as the use of future time references increases in a language, the savings rate of those speaker populations decreases. And it’s not an insignificant effect. “Germans save 10 percentage points more than the British do (as a fraction of GDP), while Estonians and Chinese save a whopping 20 percentage points more than Greeks and Indians,” Chen writes.

Chen hypothesizes that “… every time you discuss the future … grammatically you're forced to cleave that from the present and treat it as if it's something viscerally different, [which may make] you subtly dissociate the future from the present every time you speak.”

On the other hand, in a “futureless language … you speak about [present and future] identically. If that subtly nudges you to feel about them identically, that's going to make it easier to save,” he says.

So if we can’t reverse generations of language habits, what can future-time referencers do to change the way they think about savings?

1. Take a look at your future self, which can be a nice reality check. You can create a sample rendering using sites such as In 20 Years.  

2. Set up future saving strategies for your future self: Create auto increases in your 401(k) over time, perhaps related to future wage increases.

3. Equate the price of something you want to the work time it takes earn that amount. You can use the “Time is Money” Chrome extension or similar apps to translate prices into hours worked. Think that new game console looks fun? Is it worth 55 hours of work?

4. Convert today’s prices into inflated dollars for a dose of reality for your future self. Assuming modest inflation and 10% annual growth, $1 for today’s 30-year-old would grow to over 12 real (inflation-adjusted) dollars at 65. Real means that $12 would have the same spending power as $12 today. So that $5 Starbucks latte is a $60 cup of coffee for 65-year-old you.

5. Crunch the price of one day of freedom. Let’s say you are 30 and want to retire at 65 with $6,000 per month, or approximately $200 a day, to do so. Using the calculation in Number 4, your 30-year-old self would need to save approximately $16 today to have $200 at 65. In other words, every $16 dollars you save today is one day earlier you may be able to retire.

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