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Personal Finance: Seeing Life As A Cycle Makes Savings Rise In A Line
Personal Finance | Peer-Reviewed Research

Wheel of Fortune

Seeing Life As A Cycle Makes Savings Rise In A Line

Based on research Utpal Dholakia and Leona Tam

Seeing Life As A Cycle Makes Savings Rise In A Line

  • Americans who based their savings on a cyclical time orientation had a 78 percent higher savings rate than those who followed a more traditional Western orientation.
  • A cyclical world view encourages savings in part because it offers less optimism about the future.
  • A cyclical orientation could help financial and retirement planners better advise their clients.

Western culture tends to view life as a line. Plan now, we’re taught, to better control what lies down the road. Other cultures, though, particularly those in Asia, see life as a circle. The change of seasons, the wheeling of planets above, all are echoed in human lives. We start as babies, then grow old and helpless again. We live, die and replaced by our children. It’s a world view expressed by the lunar calendar, in contrast to the Western calendar with its linear march of weeks, and months.

Adopting the cyclical view, it turns out, would change more than just our perspective. According to Utpal M. Dholakia, a marketing professor at Rice Business, it could improve personal finance. In a recent paper, Dholakia and coauthor Leona Tam of the University of Wollongong, propose that Westerners can improve savings by thinking circularly.

Definitely, some new direction is called for: Americans’ personal savings rate has hovered near five percent for much of the past decade, far below the amount needed to retire comfortably. In contrast, savings rates of 20 percent and more are the norm throughout Asia. Maybe, Dholakia and his coauthor proposed, a different concept of time might turn things around.

Most Western savings plans look at time linearly. Advisors urge setting goals, moving on from mistakes and planning systematically for the future. In Asia, however time is not seen as racing down a line toward a future. Instead, life goes round in circles, reliably presenting opportunities, problems and risks, month after month.

To test if these views influenced savings, the researchers randomly assigned American subjects to two groups and instructed them to save based on two sets of advice. The “cyclical” group was told to view life as large and small cycles, and to expect the future eventually to look a lot like the present. If they performed a savings action in right now, they were told, they would be more likely to perform it in the next time cycle.

The “linear” group was told to see time as a road. Its length would be marked by completed goals and benchmarks. If they took action to save now, these subjects were told, they’d be better prepared for the future. On the other hand, if they didn’t act now to save, they would have to catch up.

Metaphysical as it sounds, this varied guidance created tangibly different outcomes. The subjects who saved based on the cyclical model saved a full 78 percent more than did the subjects following the linear model.

A second study gave insight into the savings process. In this research, Dholakia and Tam found, a less optimistic world view actually was preferable: People who were optimistic about the future put off saving until some imagined future time when they expected to have more money and more control of their financial life. Gloomier subjects saved aggressively, because they expected little or no improvement in life as it was.

Needless to say, much in these findings defies U.S. conventional wisdom. Seeing life as a road and the future as the chance for a do-ever, this thinking goes, inspire us to save. Instead, the evidence suggests, that thinking is magical. It still begs the question: How likely is it that Western financial planners, retirement counselors, and families will rethink the concept of time? It’s not impossible, as research increases and Asian immigrants become more part of the American mainstream. There’s nothing like 78 percent more in the bank to focus the mind.

Utpal M. Dholakia is the George R. Brown Professor of Marketing in the Jones Graduate School of Business at Rice University. Leona Tam is a marketing professor at the University of Wollongong.

To learn more, please see: Tam L. and Dholakia, U. (2014) “Saving in cycles: how to get people to save more money.Psychological Science, 25(2), 531-537.

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