Part VIII in our Wealth psychology series: Assistant Professor Avni Shah explains why we push harder as we get closer to accomplishing a goal, and how you can make it work for you when it comes to planning for retirement.
- Remember back to when you were a kid and running a race. The finish line comes into sight, and you give it that extra push to finish strong.
Where do we get that energy from? Behavioral economists might call this goal gradient theory.
Goal gradient theory says that a fast start leads to greater success. And knowing how well you're doing along the way generates higher achievement. It can work with our savings, too.
Here it is in action. In a study, people were given punch cards for a free coffee. One group received a card with 10 empty spaces to fill, while another group received a card with 12 spaces, but with the first two spaces already punched. Which group do you think was more likely to fill their cards? The group with the two free punches bought more coffee faster. They felt they were closer to reaching that goal of a free coffee.
We make financial decisions based on our perception of money, time, and context. In the case of retirement, it's time that's at play. Retirement, for example, is a pretty big goal, which can seem elusive and overwhelming, especially when it's so far into the future.
One tip. Set small achievable goals for yourself and track your progress towards them. Maybe it's a certain amount to be saved every year. It can be a good way to work around your own procrastination and maintain momentum. You'll work harder when you see the progress you're making.