Saving money for a new home? That may seem tough, but new research suggests you may be more successful than if you're trying to figure out how to save for a new house, your kid's education and retirement.
The new academic research paper finds that people do better at saving when they have just one goal in mind, versus the host of goals most of us tend to think about when we decide to take a hard look at our personal finances.
Researchers from the University of Toronto’s Rotman School of Management found that when people are told that it’s important to save for a number of things, they get caught up in thinking about which savings goal is most important and how much should go into each pot.
That can keep them from implementing any sort of savings plan at all.
On the other hand, when a person sets one clear savings goal, it tends to be easier for to implement.
The two researchers, Dilip Soman and Min Zhao, studied people’s reactions to various savings plans in India, Canada and Hong Kong.
They found that even people from different countries and walks of life reacted similarly when faced with decisions about saving.
"One common strategy to encourage individuals to save is to bombard them with multiple reasons to save. … The underlying assumption for this strategy is the belief that when faced with several good saving goals, individuals are more likely to save. In our research, we show that such a strategy can backfire and that a single savings goal can actually result in an increased savings rate (compared with) multiple savings goals,” the researchers wrote.