This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

This Is Why It's So Hard to Save Money

NEW YORK ( MainStreet) -- It's no secret that many households struggle with saving money, but one behavioral economist thinks he knows why - and how to fix it. As it turns out, it all has to do with a banana and a piece of chocolate.

When asked if they would prefer to have a banana or a piece of chocolate for a snack a week from now, three-quarters of people say they would pick the healthier option, according to one survey cited by the economist Shlomo Benartzi in a recent TED Talk, an online video series focused on innovative ideas. Yet when researchers checked in with the respondents a week later, the numbers flipped. Only 30% actually ended up eating the banana, while the rest succumbed to the power of chocolate.

A recent TED Talk by an economist reveals the solution to jump-starting workers' savings habits.

This lack of self-control is also what derails our intentions to save rather than spend.

"Self-control is not a problem in the future, it's only a problem now when the chocolate is next to us," Benartzi says in the video above. "We think about saving, we know we should be saving, we'll do it next year, but today, let us go and spend."

As Benartzi points out, it's easy enough to say we'll save more in the future, but when the moment comes to act, we feel what psychologists refer to as loss aversion. Put simply, it's that painful feeling of having something taken away with little to show for it, which in this case is your extra spending money.

To make matters worse, Benartzi argues that options such as 401(k)s -- which are supposed to encourage saving -- are often either unavailable or they come with so many choices employees end up ignoring the option altogether.

In the late 1990s, Benartzi and another economist decided to address these issues by coming up with a solution for savings: encourage workers to automatically increase their savings in the future rather than dealing with in the present. The two economists went to a midsize company in the Midwest, where employees complained of struggling to pay their bills, and asked those workers to set aside three percentage points more of their salary each time they got a raise. This way, workers would be able to save more money and still have more money to spend.

The solution proved incredibly effective. Those workers who agreed to the plan ended up quadrupling the percentage of their salary that they saved between 1998 and 2002.

>To submit a news tip, email: tips@thestreet.com.

Follow TheStreet on Twitter and become a fan on Facebook.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,195.13 -84.61 -0.49%
S&P 500 1,994.85 -15.55 -0.77%
NASDAQ 4,522.3110 -57.4780 -1.26%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs