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College of Food, Agricultural, and Environmental Sciences


Following 'Rules' Helps People Save

November 6, 2001

COLUMBUS, Ohio -- At a time when personal savings has plummeted, Ohio State University researchers have found that people who set specific "saving rules" for themselves are 161 percent more likely to save money than those who don't. Saving rules include guidelines such as putting a set amount of money into savings each month; saving the income of one family member while living off another member's income; or putting any "bonus" or non-regular income into a savings account instead of spending it, said Jong-Youn "Jo" Rha, doctoral candidate in the Department of Consumer and Textile Sciences in the College of Human Ecology. Rha conducted the study with Catherine Montalto, associate professor of consumer sciences, and Sherman Hanna, professor of consumer sciences. The findings could aid financial advisers help their clients increase their savings rates, Rha said. That's especially important now. While savings rates averaged between 7 percent and 11 percent in the 1960s, '70s and '80s, they tumbled to close to nothing in the 1990s and into 2000 (see accompanying chart). Rha, whose interest lies in the growing field of behavioral economics, looked at a number of behaviors and other variables to explain why some people save money over the course of a year, while others do not. The researchers used data from 4,305 households from the 1998 Survey of Consumer Finances. Not surprisingly, they found that households that reported saving generally had more financial assets and higher incomes, were more likely to be married, and were more likely to own a house than those who didn't save. The biggest behavioral factor in whether or not a household was likely to save money, though, was if the family had set savings rules for itself, as a type of self-control mechanism. "For many people, it's difficult to exercise self-control," Rha said. "Consumption is easier -- it's instantly gratifying. So, having some type of easy-to-follow external control mechanism in place, like saving a fixed amount of money every month, seems to help. That way you don't have to think about it every single month and keep making the decision over and over again." The researchers also found setting savings goals usually increased the likelihood that a household put money into savings, but not by nearly as much as savings rules did. The most frequently cited savings goals were retirement (45 percent), emergencies (27 percent), children's education (13 percent), the future (10 percent), saving for one's own education (9 percent) and saving for a house (8 percent). Having a goal of saving for retirement increased the probability of saving by 26 percent, Rha said. Saving for a house or other purchase increased the chance of saving by 20 percent, and deciding to save for emergencies increased the chance by 14 percent. Other savings goals, such as saving for the future or for one's own education, had little or no effect on the probability of saving money. "It seems that in most cases, having a specific, concrete goal helped people to save," Rha said. The researchers also were surprised to find that households who felt comfortable with their planned retirement income and those who expected their income to increase in the future were more likely to save than those who did not. "It could be that people who feel comfortable with their pension plans are savers in the first place," Rha said. "Although they feel comfortable about what their retirement income will be, they still have other goals that they want to save money to achieve. "As far as people who expect their income to increase in the future, I have no explanation for that," Rha said. "In economic theory, people who expect increased incomes would be less likely to save money now." But this is why Rha is so interested in behavioral economics, she said: It acknowledges that people sometimes behave in ways traditional economists don't expect. Rha hopes the information analyzed for the study will help financial educators convince their clients to set savings rules for themselves and set concrete goals for their savings. She also hopes the demographic profiles described in the study will help educators focus efforts on specific types of households who seem to have more trouble saving money. For example, 16.5 percent of the survey participants had less than a high school education, but that population represented more than 35 percent of the participants who had no savings goals. "Perhaps this information will help financial educators target specific lessons to specific populations," she said. The paper, "The Effect Of Saving Goals And Expectations On Household Saving Behavior," won the Certified Financial Planner Board of Standards award at the October 2001 Academy of Financial Services (AFS) Meeting in Toronto. -30- Caption for chart: Savings rates have declined to close to 1 percent in 2000 after averaging 7 percent to 11 percent in the 1980s. Source: Created by Sherman Hanna based on data from the Bureau of Economic Analysis (

Martha Filipic
Jong-Youn Rha