From the Wall Street Journal:
Why is it so difficult for people to set aside money for the long-term future? Low earnings and high temptations are obvious reasons. But perhaps the most basic cause is a fundamental human frailty: We view our future selves as strangers.
The project underway at Stanford seeks to close this gap between the present self and the future self, without turning young people into misers. By enabling the young to see themselves as they will be when they are old, virtual-reality technology can transform their urge to spend for today into a willingness to save for tomorrow
There’s a good breakdown of some current techniques for improving savings as well:
• Automatic escalation. About 40% of retirement plans, according to the Profit Sharing/401k Council of America, sign up employees automatically, meaning no action must be taken to begin saving for retirement. Many workers contribute only at the low initial rate their employer signs them up for, usually 3%. but “auto-escalation” programs, which enable employees to raise their contributions by a specific percentage, say by 1% annually, can address that problem. Only about 9% of workers who are eligible for such programs choose to participate, however, according to Fidelity Investments. If your plan offers such a feature, sign up.
• Set a retirement date today. “Referring to a specific age helps you transport yourself into the future and think of the needs you will have then,” says Shane Frederick, a marketing professor at Yale School of Management. He found in one study that people were willing to wait nearly 40% longer for a larger reward when they were prompted to think of getting the money at an exact future age.
To encourage yourself to save more patiently, you could christen an account with the date on which you expect to retire, say “The March 26, 2036, Fund,” or simply “For When I’m 60.”
• Web tools. Derek Koehler, a psychologist at the University of Waterloo in Ontario, has found that visiting a website to fill out biweekly progress reports can enable people to boost their savings. Those who monitored their progress—by seeing how much they wanted to save and their deadline to achieve it, and then reporting how much they had set aside so far and whether they still were on track—were almost 20% more likely to hit their savings target than those who didn’t fill out the reports.
People consistently deny the need for such prompting, says Prof. Koehler, but there isn’t any denying that the prompting is effective. There isn’t a reason why you couldn’t use a smart phone or calendar software to set up do-it-yourself prompts.
• Getting specific. Research sponsored by ING Financial and conducted by behavioral scholars Shlomo Benartzi of UCLA, Sheena Iyengar of Columbia University and Alessandro Previtero of the University of Western Ontario shows that when people spend three to five minutes imagining and writing down how they would feel in a comfortable and worry-free retirement, they become roughly 25 percentage points more likely to increase their savings on the spot. (Elaborating on the negative consequences of undersaving also works, but not quite as well.)
While a good overview, this highlights the trend of behavioral economics and finance of being a widely varied and somewhat anecdotal set of tactics and tools, rather that having a single coherent theory-of-everything.