How time travel can help clients save for retirement

Simon Russell

By

February 4, 2015

Do you recall in Back to the Future II when Marty and Doc contemplated what would happen if you encountered your future self? Famously, Doc envisaged two possibilities. One was that you would go into shock and pass out. The second was that “the encounter would create a time paradox, the result of which could cause a chain reaction that would unravel the very fabric of the space-time continuum and destroy the entire universe!”

That was 1989. Fast forward to today and behavioural scientists are contemplating time travel again. This time the universe is safe. In fact, there may be real benefits.

As we all know, Australians have a large retirement savings gap. This is despite compulsory superannuation, knowledge of the benefits of saving, and many people’s good intentions to save more. Behavioural finance has elucidated a number of reasons why our knowledge and intentions often don’t translate into actions. Some of these are familiar to anyone who has tried to achieve something that requires willpower, whether it be a new diet, exercise regime or savings plan. Other barriers are less obvious, but are now being shown to be important in behavioural finance studies.

One such barrier is the fact that we can’t easily create a strong psychological connection with our future self. With all the possibilities the future may hold, it’s hard to bring to mind a vivid picture of what we’ll be like. In fact, our older self is so foreign that brain scans show that we think about him or her just like we might think about a stranger. “Why would I save more just to help a strange old man/woman?” you might subconsciously ask.

Computer-generated self

One strategy to help overcome this is to view a computer generated image of that older self. Some studies have even tried animating the images, by changing its expressions to reflect different saving decisions. For example, if you choose to save more, your older self starts to smile. As a result the saver starts to better identify with, and share an emotional connection with that older person.

These studies show that people who have seen and interacted with their older personas choose to save more when given the opportunity. In contrast, a retirement planning calculator might give you compelling facts, but by not creating the connection, fails to generate the same behavioural change.

If you are curious, a computer generated rendition of your future self is available here: http://faceretirement.merrilledge.com.

If you’re like me, your rendered future self will look like a more haggard version of your same sex parent – in my case, my father. But at least the machine predicts I will keep what’s left of my hair. I don’t share its optimism!

It might seem like a bit of fun, but the consequences are important. As we know, with the benefits of compound interest, small increases in saving can have important long term consequences. Super funds, financial advisers and on-line advice providers should now be incorporating these types of tools into their arsenal.

In Back to the Future, Biff used time travel to create a fortune betting on sports events. For the rest of us, virtual-travel may at least help guide us to a comfortable retirement.


TOPICS:  retirement,

 superannuation

Simon Russell

About The Author /

Simon Russell is director of Behavioural Finance Australia