saving for a rainy day

Behavioral Economics: Your Language Might Influence Your Savings

Sep 22, 2013 • Behavioral Economics, Households, Lifestyle, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 451 Views    No Comments

While in English we say, “It will rain tomorrow,” someone speaking in German states, “It rains tomorrow.” According to UCLA economist Keith Chen, because their language makes the future feel closer, Germans deal with it more responsibly.

I know, it sounds farfetched. But the statistics, at the least, establish a correlation between languages with weak and strong future time reference (FTR) and responsible future planning. Although we cannot be sure, there might even be some causation. What we do know is that when a language creates less of a gap between the present and the future, people tend to save more, they have more when they retire, they practice safer sex and they are thinner.

Perceiving the hypothesis as a cost issue, I found it more believable. After all, saving now requires a current sacrifice for some future benefit. If that future feels more tangible and immediate, we are more likely to accept the current burden.

In an excellent TED talk, Dr. Chen explains his research.

In his TED talk, he shows a map of the EU. Astoundingly, the weak FTR countries have the healthiest economies. Correspondingly, the last bar on the following graph is Greece–a strong FTR country with a low savings rate.

Behavioral Economics-Savings and Language Keith Chen

From: “The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets,” p.26.

 

In another study about retirement savings decisions, researchers created elderly lifelike pictures of participants in a virtual mirror. The results? People who saw an aged image of themselves saved more. As with weak future languages, connecting the present to the future more closely made the difference. (We discuss the study further here, in econlife.)

Sources and resources: For more of Dr. Chen’s discussion about languages and economics, you will enjoy his paper, “The Effect of Language on Economic Behavior: Evidence From Savings Rates, Health Behaviors, and Retirement Assets.” I also suggest looking at Keith Chen’s blog discussion of the significance of weather forecasting language and a hat tip to the Atlantic for introducing me to his work.

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