Born to save?

June 2016

Why are some countries and cultures better at saving money than others? The answer may be in the way we communicate.

A US study found an intriguing link between language structure and propensity to save money. By Vilma Attanasio.

As a financial adviser, you know how much people’s attitudes and behaviours vary when it comes to money. But have you ever wondered why this is the case?

Keith Chen, a behavioural economist from the US, studied household savings among Organisation for Economic Co-operation and Development countries and found an intriguing link between savings rates and the language spoken – specifically when you compare how different languages talk about the future.

Futured v futureless languages

In English, we structure our sentences differently when we’re talking about the past, current and future (e.g. it has rained, it is raining, it will rain).

But in many other languages – including Chinese, Norwegian and Japanese – this requirement doesn’t exist. In other words, they can affectively use the same sentence structure for all scenarios.

Chen’s hypothesis is that people who speak 'futured' languages, like English, find it more difficult to save money because we naturally separate the present and the future in our minds.

Conversely, Chen believes people who speak 'futureless' languages find it easier to save because they don’t distinguish between the present and the future.  

What does the data say?

Chen tested his theory by isolating populations that speak both futured and futureless languages – helping eliminate other variables that may affect the results. For example, in Belgium some people speak Flemish (a futureless language) and some speak French (a futured language).

Within these populations, Chen found that people who speak futureless languages:

  • were 30 per cent more likely to save
  • retire with 25 per cent more in savings.

Interestingly, the study also found that people who speak futureless languages made better lifestyle choices, being:

  • 20 per cent to 24 per cent less likely to smoke
  • 13 per cent to 17 per cent less likely to be obese.

At a country level, OECD countries who speak futureless languages had significantly higher savings rates, as shown in the following table. On average, the savings rate as a percentage of gross domestic product was 5 per cent higher than countries with futured languages. 

Savings rate (% of GDP): 1985-2010

Source: The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets M. Keith Chen Yale University, School of Management and Cowles Foundation April, 2013 Status: Published, American Economic Review 2013, 103(2): 690-731 Editorís choice, Science Magazine, Vol 339(4)

What does this mean for you?

If we can assume that English-speakers generally feel less connected with their futures than some of the world’s better savers, this has significant implications for advisers.

Most importantly, you need to be aware that talking too much about "the future" may create a sense of detachment for many of your clients. Instead, your conversations should focus as much as possible on immediate needs and shorter-term benefits.

  • Don’t say: “Have you thought about whether you’re going to have enough super to retire with?”
  • Do say: “Are you making the most of super as a tax-effective investment strategy?”
  • Don’t say: “Do you have enough life insurance to provide for your children’s future education expenses?”
  • Do say: “How long would you be able to stay in the family home if you lost the ability to work tomorrow?”

The longer-term benefits of these strategies are still just as important. But shifting your focus to shorter-term benefits may help you present a more compelling case for your advice – which will ultimately improve your clients’ long-term financial position.