How many times have you made a commitment that your future self regretted? For example, perhaps in January you agreed to attend a work function in June, imagining how great it would be for your career. Yet, by June, your Current Self thinks mainly about how inconvenient the function is and feels a certain resentment that Past Self committed to it.
Researchers call this temporal discounting, a phenomenon whereby people feel more connected to their current self than their future self, and indeed greatly discount the future self’s needs. According to researchers Hal Ersner-Hershfield et al., this lack of empathy for one’s future self may have implications for saving for retirement. “If people consider the future self as a stranger, then they may rationally have no more reason to save money for themselves than to give the money to a stranger.”[1]
I thought about this as I was reviewing EBRI’s recent “Retiree Reflections” research. Fielded in Spring 2022, the survey asked more than 1,100 American retirees between the ages of 55 and 80 what they wished they’d done differently in preparing for retirement. For many, the message was clear: They wished their younger selves had been a lot more considerate of their future selves. They wished they’d planned earlier for retirement and changed their financial habits during their working years to improve their current financial situation. Specifically, they wished they’d spent less on discretionary items such as vacations, friends, and even children’s college tuition. One wrote, “Instead of buying trendy clothes/shoes I should have bought stocks.” Another opined they would have been better off it they had: “Saved more and not gave too much to my kids.”
Yet, the next generation of retirees may not fare much better than today’s retirees. According to the 2022 Retirement Confidence Survey (RCS), 4 in 10 workers say that saving for or paying off a child’s education is reducing the amount they are saving for retirement. And nearly half of workers say debt has negatively impacted their ability to save for retirement. Worse, over its long history, the RCS has consistently shown that workers tend to expect their future selves to work longer than retirees say they actually do.
Ersner-Hershfield et al. propose that allowing people to interact with age-progressed renderings of themselves could cause them to allocate more resources to the future. Indeed, participants in one of their researchers’ studies interacted with realistic computer renderings of their future selves using immersive virtual reality hardware and interactive decision aids. In all cases, the research found, those who interacted with their virtual future selves exhibited an increased tendency to accept later monetary rewards over immediate ones — in other words, savings behaviors. With respect to retirement, the RCS shows that just going through the exercise of calculating how much one needs to save for retirement may help make it easier for workers to identify with their future retired self. According to the RCS, workers who perform such a calculation are dramatically more likely than those who have not to report they or their spouse have saved any money for retirement and to say they or their spouse are currently saving for retirement. Or perhaps such individuals started out more empathetic with their future selves to begin with.
[1] “Saving for the future self: Neural measures of future self-continuity predict temporal discounting.” Hal Ersner-Hershfield, G. Elliot Wimmer, and Brian Knutson. Department of Psychology, Stanford University, 2009.