People struggle to invest for their long-term needs.
This plain fact is demonstrated in the dismal (I’m being kind; it’s really bad) savings rates of South Africans published annually in the Old Mutual savings and investment report. Why is this? Why are people simply not bothered about their future self?
To put it simply, unless the benefits are incredibly obvious and incredibly strong, our brains almost exclusively react in terms of what creates the best life for us in the short-term future, not the long-term.
For us to worry about things beyond the next week or two, we must be shown that something is overwhelmingly beneficial long-term or that it’s overwhelmingly costly long-term and should be avoided.
It would then suggest that poverty, or a serious downgrade in standard of living in old age, is not enough of a motivation to invest accordingly.
I then would ask, what is? Clearly I don’t know as I constantly struggle to get people to invest enough, by overcoming their short-term outlook bias.
Things like skipping a short-term pleasure because it will mean a small amount more in a retirement account in thirty years isn’t enough for most people. Therefore, most people don’t save for retirement, or if they do, it’s a pittance, usually done to make someone else happy.
The number of people who save significantly for retirement is surprisingly few, particularly when you get far away from retirement. This is true for almost all long-term goals.
For example, it’s why most people don’t exercise – the short-term benefits of not exercising (free time, not having to exert oneself) are enough, in the minds of most, to outweigh the long-term health costs of exercising.
So now you know. The question is, will you do something about addressing this behaviour? As the bumper sticker says, make more money, ask me how.