Why don’t we take care of our Future Selves?

Have you heard of something called the “Present Bias”? It’s a fascinating cognitive ability that I believe leads to people being so terrible at saving money. Just look at the current savings rate according to the Federal Reserve Economic Data.

The Fed shows that most recently our savings rate is at a measly 5.1%! This is terrible especially when the minimum savings rate for retirement is suggested to be between 10%-15%, and this is on the generous side! So why are we missing the mark so badly? I believe, and studies like this one done by the NBER show one of the issues is our present bias.

So what is present bias? Research has shown that we tend to treat our future selves differently than our present selves, often prioritizing our immediate needs and desires over those of our future selves. There are several reasons why this happens.

One reason is that our brains are wired to prioritize short-term rewards over long-term ones. This is because in the past, our survival depended on getting immediate rewards, such as food and shelter, rather than waiting for potential future rewards that may never materialize. As a result, our brains have evolved to prioritize present rewards over future ones. Hence it becomes harder to think about the future and save up our money when we could be using it now in the short-term.

Another reason is that we often have a limited ability to imagine our future selves. When we think about our future, we tend to imagine a stranger or someone we don’t know very well, rather than ourselves. This makes it easier for us to prioritize our present needs and desires over those of our future selves. Do you ever notice how it is easier to start a diet in a couple days, rather than starting it now? We imagine these hard things will be easier for our future selves, when in reality we will most likely feel the same in the future.

Additionally, we tend to discount the value of future rewards. This means that we place less value on rewards that we will receive in the future compared to rewards we can receive immediately. This can lead us to make choices that benefit us in the short-term, but may be harmful to our future selves.

Fortunately, there are strategies we can use to overcome these biases and better prioritize our future selves. For example, we can make a habit of setting specific goals and creating plans to achieve them, which can help us focus on the long-term benefits of our actions. We can also try to imagine our future selves more vividly, such as by looking at old photos of ourselves or imagining what we would want for ourselves in the future. Think of your financial goals, creating a bucket list, or retirement goals are great options. By doing so, we can become more motivated to take actions that benefit our future selves, even if they may not provide immediate rewards. Remember we need to start being kinder to our future selves, one day well thank our past selves for taking care of future selves!