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Savings hints & tips based on behavioural science

30 August 2021

The COVID pandemic has disrupted our lives in many ways. The good news is that when our status quo is disrupted on such a scale, it acts as a window of opportunity to break old habits and form new ones. Whether it’s establishing a new savings habit or improving on an existing one, there’s no better time than the present to do it.

We recently conducted research which revealed much about how Irish people are feeling and behaving, and you can check out more about our Reflecting Ireland research here. That’s why we have partnered with Behavioural Scientist Claire Cogan of BehaviourWise to support our customers in building and maintaining good savings habits with these tips from behavioural science, supported by permanent tsb.

If you're new to saving, start small and build a habit

Our Reflecting Ireland research reveals that 38% of us don’t save; 26% because we can’t afford to and 12% because we’re not in the habit of doing so. If you can afford to save even a small amount, try it. However small the amount is, as you create a habit and the amount saved builds over time it will make you feel good. Time your savings to coincide with when you receive income so that you build an association between receiving money and putting a little of it aside.

If you haven't done so already, start a "rainy day" fund

Our research shows that half of savers in Ireland have a “rainy day” fund. Having access to savings in an emergency is one of the first building blocks of financial wellbeing. Those of us who are able to save but choose not to plan for a “rainy day” may be prone to optimism bias where we believe we are less likely than others to experience a negative event. It is good to be aware of this and to plan for a possible “rainy day”, even if we feel it is unlikely to happen.

If you have debts, pay off what you can

Over the long-term, what you gain from saving may be reduced or even cancelled out by what you pay to service loans. Loss aversion means we hate losing more than we like winning. We can use this to encourage ourselves to achieve a good balance between what we owe and what we save. 

Label savings to keep you focused on the purpose

Mental accounting describes our tendency to assign money to different spending categories in our minds, for example a “holiday fund” or a “new car fund”. Even though we could spend the money on whatever we like, we will tend to spend it on what we’ve labelled it for. You can make a mental note of your savings label, or you can go further and create a nickname for your savings account. Assigning a label to our savings helps keep us motivated by reminding us of the goal we’re striving towards.

Pick a reference point to monitor your progress 

In behavioural science terms, we judge outcomes relative to a reference point. When we save, the reference point we choose will influence how we feel about any progress we make. If our reference point is a target that seems out of reach or liable to change, it will make us feel frustrated. On the other hand, if our reference point is a target that is too low, it will leave us feeling we could reap more reward. Pick a reference point that works for you and makes you feel good about the progress you’re making. This could be based on time, amount saved or progress towards your goal:

  • I’ve been saving for 3 months now”
  • “I have €30 more in my savings account this month than last month”
  • “I’m 2 months away from having enough saved to go on a weekend away”

Resist the temptation to compare yourself to other

In behavioural science, social norms can be very powerful. We are highly influenced by what others do, particularly those we consider to be in our peer group. Sometimes this is a positive thing, but it can also be detrimental. During the Celtic Tiger years many people felt pressure to “keep up with the Joneses” which led to unhappy financial outcomes for many.  What’s right for others may not be right for you. Think about your own situation and what’s important to you and make that the focus of your savings plan.

If you're saving for a long-term goal, reward yourself along the way

Because we are present biased, we prefer to receive smaller sooner rewards to larger later ones. If you’re saving for a long-term goal such as buying a house, the reward may be large but seem far away and that can sap your enthusiasm for staying the savings course. Allow yourself little rewards every now and then, like stepping-stones towards the larger reward of your long-term goal.

If you struggle with self-control, consider a commitment device

Quite often, even when we have an intention to do something we struggle to follow through. We call this the intention-action gap. In behavioural science, commitments help us stick to our plans and achieve our goals. One example is setting up a direct debit to automatically transfer money to your savings account on a regular basis. This is helpful if you tend to forget about saving or procrastinate about how much to save. Another is making an “If/Then” promise to yourself, for example “If I save each month for 6 months, then I can have a weekend away”. If you’re afraid you won’t stick to your own commitment, consider telling a trusted family member or friend so they can help keep you motivated. 

Take care of your future self

We tend to be present-biased, in other words we place more value on the present than on a period in the future, particularly the distant future. This is because the future is always more uncertain than the present, and we like to deal with certainty. This can lead us to deviate from our future plans. Even if planning for retirement seems like a sensible idea, if it’s in the distant future, we’re unlikely to prioritise it. We prefer to think about what we can have now, rather than what we could have later. A little time spent planning for the future, whether that’s retirement or saving for a future goal, will pay financial dividends later and is good for our financial wellbeing. 

If you have children teach them to save, to look after their future financial wellbeing

If you have children, encourage them to start saving regularly so that they build good financial habits that will become second nature in adulthood. New habits need a cue to act as a trigger. Many of us will remember a money box from our childhood where we kept our spare coins, watched as the money built up and looked forward to when we could spend it. This acted as a perfect cue because it was visible to us. Today there are a range of savings account options designed to help children save.  To help your children form a lasting savings habit, remember 3 golden rules:

  1. Create a visible cue to act as a trigger
  2. Establish a routine, e.g.: adding to savings each month, or each time they get pocket money
  3. Link to a reward


The content of this blog does not constitute advice and is for general information purposes only. Readers should always seek professional advice before relying on anything stated in the blog. Some of the links above bring you to external websites. Your use of an external website is subject to the terms of that site.

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