saving money is a good habit case study

A child puts one five-rupee coin of her savings in the piggy bank on the first day. She increases her saving by one five-rupee coin daily. If the piggy bank can hold 190 coins of five rupees in all, find the number of days she can contribute to put the five-rupee coins into it and find the total money she saved. [CBSE 2017]

Saving of the child on the first day = rs 5 saving on the second day = rs 5 + rs 5 = rs 10 saving on the third day = rs 5 + 2 × rs 5 = rs 15 and so on the saving of the child on different days are rs 5, rs 10, rs 15, .... since the savings of the child for each succeeding day is rs 5 more than for the preceeding day, therefore the savings for different days forms an ap with first term a = rs 5 and common difference d = rs 5. suppose the number of days she continued to put the five-rupees coin in the piggy bank be n . it is given that the total number of five-rupees coins in the piggy bank is 190. so, the total sum of money saved by the child in n days = 190 × 5 = rs 950 ∴ s n = 190 × 5 = 950 ⇒ n 2 2 × 5 + n - 1 × 5 = 950 ⇒ n 2 n + 1 = 190 ⇒ n 2 + n = 380 ⇒ n 2 + n - 380 = 0 ⇒ n 2 + 20 n - 19 n - 380 = 0 ⇒ n n + 20 - 19 n + 20 = 0 ⇒ n + 20 n - 19 = 0 ⇒ n + 20 = 0 or n - 19 = 0 ⇒ n = - 20 or n = 19 since the number of days cannot be negative, so n = 19. so, the number of days she continued to put the five-rupees coin in the piggy bank is 19. also, total sum of money saved by her = rs 950.

Meena has 5 one rupee coins for every 2 five rupee coins in her pocket. She has ____% less number of five rupee coins than one rupee coins.

Sheila has 8 two hundred rupee notes, 11 five - rupee coins, 6 two - rupee coins and 14 one - rupee coins. How much money does she have?

Chintu piggy bank collection has only 2 rupee coins and 5rupee coins .The number of 5 rupee coins exceed the 2 rupee by 10 .If the total value is rupees 155. Find the 2 rupee coins and 5 rupee coins

Is Saving Money Part of Your Lifestyle?

New research finds having a personal saving orientation has many benefits.

Posted January 19, 2016

“We shall drink water and walk slow.” – Muriel Spark in The Prime of Miss Jean Brody

Saving money consistently is a challenge for many people. As I wrote recently on this blog, setting a saving goal―whether it’s a few hundred dollars for a summer vacation or a large lump sum for a life-changing down payment on a new home―isn’t always effective. What is more, studies have shown that even after controlling for level of income, people still differ in their success (or lack thereof) at saving money steadily. This was illustrated memorably in the late Dr. Thomas Stanley’s research on American millionaires. Participants of his studies had amassed over a million dollars (and often a lot more), but many of them had relatively small and below-average incomes. Some millionaires owned small businesses; others were high-school teachers or blue collar workers. They became wealthy by saving week after week, month after month, over long periods of time and letting their savings grow. Saving money was a part of their lifestyle.

The fact is that just like some people have no trouble with maintaining their health (by following a routine of healthy behaviors such as eating moderately and exercising, and staying away from clearly unhealthy activities such as smoking or heavy drinking), some people are better than others at making saving money a part of their lifestyle, no matter how much money they make.

In a recent paper titled “The Ant and the Grasshopper: Understanding Personal Saving Orientation of Consumers” that can be downloaded here , my coauthors Leona Tam, Sunyee Yoon, Nancy Wong and I advanced the idea that the difference in consistent saving is a personality characteristic of people. We call it the “Personal Saving Orientation” or PSO for short. We argued that every individual has a chronic level of PSO, and found that higher PSO confers significant benefits.

What is a Personal Saving Orientation?

This is how we defined Personal Saving Orientation. It is an individual difference supporting a constellation of activities to save money, some of which are habitual and routinized, while others are opportunistic and intentional, that the individual performs on a consistent basis and incorporates into his or her lifestyle. So instead of conceiving of saving money strictly as the setting and reaching of a series of goals, we described it as a “ motivational tendency ” that is based on a combination of focused goal-setting and a variety of routinized activities; in other words, as a lifestyle. (Social psychologist Julius Kuhl developed his Action Control Theory in the 1980s in which he described how a motivational tendency is formed, its workings, and how it influences behavior. We used his ideas as the basis for the Personal Saving Orientation concept).

We also developed the PSO scale to measure an individual’s level of Personal Saving Orientation. Starting with 120+ items and reducing and testing their properties in a series of psychometric studies, our final PSO scale has nine statements representing the set of behaviors that individuals need to cultivate and sustain in order to save money successfully. You can indicate your agreement with each statement on a 7-point scale where 1 = “I disagree completely” and 7 = “I agree completely”:

• I keep a careful watch over my spending on a daily basis.
• I do not spend money thoughtlessly, I would rather save it for a rainy day.
• Putting money into personal savings is a habit for me.
• I actively consider the steps I need to take to achieve my personal savings goals.
• I like to discuss the topic of saving money with my family and friends
• I usually save money without having a specific goal in mind.
• The goal of saving money is always at the back of my mind.
• Saving money on a regular basis should be an important part of one’s life.
• Saving money is like a lifestyle, you have to keep at it.

Take a moment, take the PSO test, and calculate your score. High scores are 50 points or more (you would be in the top 25% of respondents in most of our studies with this score), while low scores are those below 35 (the bottom 25%).

What Are the Benefits of a Personal Saving Orientation?

In all, we conducted a total of 19 studies for this project involving thousands of consumers to examine how the Personal Saving Orientation affects different financial outcomes. We found that high-PSO consumers:

• Save a greater percentage of their income regularly
• Put away more of any windfall they earn (for instance, a tax refund) into savings instead of spending it on luxuries or even necessities
• Have more liquid cash in their bank accounts
• Have more investments in stocks and bonds
• Have less credit card debt
• Are more likely to have a fund for emergencies
• Use credit cards more prudently (they pay off their balances each month, use a fraction of their total credit limit, and so on)
• Are more patient and able to delay gratification
• Are less likely to act on an impulse to buy something in an unplanned fashion (even when they are naturally impulsive shoppers)
• Are better able to utilize factual knowledge about how personal finances work for their benefit (The topic of financial literacy and how it affects financial behaviors is a fascinating one; I will write about this in a future post).

Perhaps most importantly of all, high-PSO consumers possess greater financial well-being , the equivalent of “money happiness .” They experience lower levels of stress about finances, they report being more satisfied with their current financial situation, and they make their decisions about whether to buy or experience something based on whether they want it rather than whether they can afford to. Simply speaking, they have greater control over their consumption decisions.

What is the main lesson of this research? Rather than thinking of saving money as a goal to be reached or as a task to be deferred to the future, it is useful to think of saving money as a lifestyle that covers a broad set of contributory activities to be undertaken on a regular basis. One implication is that we can be more forgiving of ourselves. If a certain virtuous saving behavior is hard to pull off―say, someone loves to splurge regularly on new fashions―there are many other behaviors that may substitute in its stead. The fashion lover may find it easier to cook and eat at home more often, or cut the cord on pricey cable television. Making money saving a part of one’s lifestyle has broad-based psychological and tangible benefits.

I teach core marketing and pricing to MBA students at Rice University . You can find more information about me on my website or follow me on LinkedIn , Facebook , or Twitter @ud.

Utpal M. Dholakia, Ph.D. , is the George R. Brown Professor of Marketing at Rice University.

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The Psychology of Saving Money: What Does the Research Tell Us?

We’ve all met somebody brilliant at managing their money and somebody equally disastrous at keeping on top of their personal finances. But what separates the savvy saver from the debt-saddled frivolous spender? And how can a person struggling with their personal finances really transform their psychological approach to saving money?

These questions are all the more important when you consider the importance of healthy finances for our mental health. A survey by the American Psychological Association, for example, found that some 72 percent of Americans felt stressed about money at least once in the prior month.

Thankfully, there is now ample research to begin answering these questions. Behavioural economics and psychological research offers some interesting advice on how we can use the workings of our brains to foster a savings mind-set.

Automating Your Finances

The frugal living blogging community extolls the benefits of automating your savings and investments – and with good reason. In short, the automation of personal finances is about setting up automatic transfers and payments into savings accounts, investments and financial commitments periodically.

The approach isn’t fool proof, but it strips away the opportunity to spend the money moved on impulse and instead tucks it away for the future. And with automatic transfers and payments, your money is allocated where it is needed as soon as it arrives, without having to grapple with difficult spending decisions. In other words, your money is on ‘autopilot’, making it a lot easier to make the responsible choices with your money.

Not only should this reduce stress levels and time devoted to managing your money, but evidence from psychological studies suggests you will actually save greater amounts over the long term.

Nava Ashraf, Dean Karlan and Wesley Yin published research in the Quarterly Journal of Economics in 2006, for example, which demonstrated that automating transfers to accounts with time or total value criteria created lasting changes in savings approaches.

What’s more, research from Roy Baumeister and his colleagues at Case Western Reserve University showed that our willpower muscles can get tired. And while our willpower is most run down we are more likely to overspend and make less responsible financial decisions. The role of automation of our finances – to make more responsible decisions with our money on autopilot – can therefore mitigate the risk posed by willpower fatigue.

Tracking Your Finances

As well as offering a range of other benefits, setting up a proper system for tracking your personal finances can also act as an impetus for psychological change. Checking balances regularly, understanding your net worth and holding yourself accountable based on those figures can foster significant financial benefits.

This isn’t just anecdotal. A study by Shlomo Benartzi and Yaron Levi found that participants using a mobile app to track spending and investment performance reduced their spending by nearly 16 percent. Similar research by the Federal Reserve in 2016 found that 62 percent of mobile banking users checked their account balance before making a large purchase in the 12 months prior to the survey, and half of them decided not to purchase an item as a result of their account balance or credit limit.

So it’s clear that increased awareness of our personal finances drives behavioural change in our spending and investing patterns. And with the new technologies at our disposal, driving that awareness of our personal finances and creating a positive habit of tracking our money is now easier than ever before.

Goal Setting and Small Wins

Automating and tracking your personal finances are evidentially great ways to create a positive savings mind-set, but they’re not a silver bullet. Our saving habits can fall away as our motivation wanes. Forming and achieving specific goals can therefore play a crucial role in sustaining motivation and engraining new habits.

Charles Duhigg explains this brilliantly in his book, The Power of Habit . In short, he outlines that how we form positive – and negative – habits depends on a habit loop that we all adopt unthinkingly in our neurological make-up. These habits are fortified by associative rewards and can only be formed through the adoption of particular behaviour patterns.

Of course, in order to form these new behaviour patterns there must be some underlying motivation to behave. And that’s where goal setting comes in. The achievement of goals has been shown to have a positive impact on savings motivation so can act to maintain a savings mind-set. Our brains produce higher levels of dopamine upon achieving our short-term goals, which acts to reinforce new behavioural patterns.

But don’t set over-reaching goals or overdo the number of savings goals. Research from Dilip Soman and Min Zhao published in the Journal of Marketing Research suggests a single well-defined savings goal fosters higher ‘implementation intention’ than multiple savings goals – in other words, providing a more powerful spur for actually saving money.

My tip: Celebrate success, but keep your eye on the prize

All this automating, tracking and goal setting can still take its toll. The words budgeting, pension planning or cost cutting are not exactly bright sparks of motivation. Indeed, the reality is that they tend to bring associative ideas of deprivation , sacrifice and even unhappiness to the surface.

So how can we reinforce positive ideas to go with this journey towards shifting our mindsets?

The big rewards for saving and investing are often deferred for the long term, so as you achieve short-term wins it’s worth celebrating your successes to reinforce the change journey further. As already mentioned, there is ample research out there on the benefits of short-term wins for habit formation, but the occasional reward above and beyond just achieving your short-term goals can make the journey all the more enjoyable.

Why not treat yourself to a meal out for hitting your saving target for the month? Or buy that jacket you’ve had your eye on for a while? So long as your treat is reasonably priced, it’s not going to set you back dramatically on your journey. In fact, it may just reinforce your new found savings habits.

And a possible bonus from flexing those willpower muscles…

While we make changes to the way we think about money, we’re flexing our willpower muscles in new ways. Our newfound awareness of our net worth is challenging our previous levels of impulsivity. We are starting to say no to unnecessary costs and yes to frugality. And research suggests that this savings mind-set may yield more results than just the financial ones.

Back in 2006, Megan Oaten and Ken Cheng published some interesting research on willpower . They asked participants in a study to undertake a money management programme, which involved similar exercises such as tracking and automating their finances, and setting goals and targets.

Unsurprisingly, their personal finance situations improved. But incredibly, the researchers found that participants were also smoking fewer cigarettes, drinking less alcohol and caffeine, and eating less junk food. What’s more, the participants were found to be more productive at work or university. As Charles Duhigg puts it, “once willpower became stronger, it touched everything.”

So there you have it: automate and track your money, set goals and celebrate short-term wins. And who knows, you may just lose weight and work more productively while you’re at it.

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Open Access

Peer-reviewed

Research Article

You don’t have to be rich to save money: On the relationship between objective versus subjective financial situation and having savings

Roles Conceptualization, Funding acquisition, Methodology, Project administration, Supervision, Writing – original draft

* E-mail: [email protected]

Affiliation Faculty of Psychology, University of Warsaw, Warsaw, Poland

Roles Formal analysis, Writing – original draft

Affiliation Institute of Psychology, Polish Academy of Sciences, Warsaw, Poland

Roles Writing – review & editing

Affiliation Wroclaw Faculty of Psychology, SWPS University of Social Sciences and Humanities, Wroclaw, Poland

• Dominika Maison, 
• Marta Marchlewska, 
• Katarzyna Sekścińska, 
• Joanna Rudzinska-Wojciechowska, 
• Filip Łozowski

• Published: April 1, 2019
• https://doi.org/10.1371/journal.pone.0214396
• Reader Comments

Saving is an important financial behavior that provides an individual with psychological security and boosts his/her overall sense of well-being. For this reason, scientists and practitioners have attempted to understand why some people save when others do not. One of the most common explanations for this phenomenon is that those individuals who earn more should be more willing to save their money. In line with this logic, people who have more money should be more likely to have savings. Considering the results of prior research, we expected objective financial situation (income) to be positively linked to having savings (i.e., propensity to have savings and the exact amount of savings). At the same time, however, we assumed that subjective financial situation (perception) should also be positively related to these variables. To test our assumptions, we conducted a nationwide representative survey ( N = 1048) among Polish respondents, asking them about their objective and subjective financial situation. The results of a regression analysis showed that objective financial situation was indeed significantly positively related to having savings. However, subjective financial situation was also positively correlated with having savings (even when we controlled for objective financial situation and demographic variables). We discuss the implications of the links between objective versus subjective financial situations and having savings.

Citation: Maison D, Marchlewska M, Sekścińska K, Rudzinska-Wojciechowska J, Łozowski F (2019) You don’t have to be rich to save money: On the relationship between objective versus subjective financial situation and having savings. PLoS ONE 14(4): e0214396. https://doi.org/10.1371/journal.pone.0214396

Editor: Srikant Devaraj, Ball State University, UNITED STATES

Received: October 19, 2018; Accepted: March 12, 2019; Published: April 1, 2019

Copyright: © 2019 Maison et al. This is an open access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Data Availability: The data underlying this study have been uploaded to the Open Science Framework and are accessible using the following doi: 10.17605/OSF.IO/H7RK4 .

Funding: This project was supported by the Faculty of Psychology at the University of Warsaw (BST 181421/2018 awarded to Dominika Maison). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: The authors have declared that no competing interests exist.

Introduction

Even though there is no doubt that saving is an adaptive behavior, many people do not save at all. According to financial analyses, citizens in many European countries do not have sufficient savings to live a comfortable life without having to worry about fulfilling their basic needs. For example, a study conducted in 13 European countries (total sample size N = 13 936) by the ING Group (one of the world’s leading banking/financial companies) showed that 29% of Europeans declared that they had no savings, whereas 36% declared that the amount of their savings is equal to the amount of their living costs for three months [ 1 ]. The situation seems even more dramatic in the US, where according to a 2017 GoBankingRates survey, 57% of Americans have less than $1,000 in their savings accounts, and 39% have no savings at all [ 2 ]. This act of financial irresponsibility encourages economists and social scientists to search for individual predictors of saving behavior and ways to increase people’s willingness to save money.

The fact that some people have more while others have less in savings is most often explained by the amount of money people earn or have at their disposal [ 3 – 4 ]. For example, Davis and Schumm [ 5 ] investigated the relationship between saving behavior and household income and identified an income threshold below which respondents saved almost nothing. The positive relationship (r = .50) between annual family income and the amount of savings was only found among families that earned more than a certain amount. Other researchers state that income is the most important factor in determining saving behavior [ 6 – 7 ]. On the other hand, poor or low-income individuals are also able to save some money [ 8 – 12 ]. Moreover, a wealth of research has shown that the ability to put money aside is not only influenced by economic factors [ 13 – 15 ] but also by a range of psychological variables (see [ 16 ] for an overview). Considerable attention has been paid to the motives behind human decisions to start saving money [ 3 , 17 – 21 ], as well as individual variables, such as risk aversion, locus of control or optimism [ 22 – 23 ]. Some studies also emphasize a positive relationship between time horizon and saving [ 24 – 26 ] and others stress the role of situational factors that might significantly impact a decision about whether to put money aside, for example, fear of death [ 27 ], feeling connected with one’s future self [ 28 ], feeling powerful [ 29 ], or feeling stressed [ 30 ]. Thus, the underpinnings of having savings may be much more complex than presented through most economic analyses and dependent on many other factors in addition to income. We propose that one of those factors might be a subjective financial situation, i.e., its perception.

Subjective versus objective measures

Psychological literature stresses that in many life areas subjective assessment of a given situation is not always directly linked to objective facts. For example, research on life-satisfaction shows that it is only slightly related to one’s objective situation (i.e., income, health, family situation) especially when basic life needs are satisfied [ 31 – 32 ]. The literature also shows that, in some cases, the perception of a given situation has a stronger influence on decisions and behavior than objective facts. For example, the perception of body weight is more closely linked to internalizing and externalizing problem behavior, as well as social and thought problems, than an objective measure of body mass [ 33 ]. Underweight or overweight adolescents who consider themselves to be in a good shape have no more problems than those with a normal BMI. On the other hand, the perception of being ‘too thin’ and particularly ‘too heavy’ is a stronger predictor of problematic behaviors than actual weight, both among male and female adolescents. Another example was provided in the study conducted by Miron-Shatz Hanoch Doniger,Omer, and Ozanne [ 34 ], which showed that the willingness to pay for BRCA1/2 genetic testing (a positive test result is a substantial risk factor for breast and ovarian cancer) is affected by subjective but not objective numeracy (an ability to understand and manipulate numbers).

Similar patterns of results are also observed for variables reflecting one’s financial situation. In many cases, perception of financial situation or status had stronger predictive value for different behaviors than their objective measures. Firstly, subjective social status, understood as an individual perception of one’s own position in the social hierarchy [ 35 ], was shown to be a better predictor of need for utilization of health services than the ‘hard data’ [ 36 ]. Compared with objective indicators, subjective social status was more consistently and strongly related to psychological functioning and health related factors [ 37 ]. Moreover, subjective social status predicted health, even after accounting for traditional indicators of socioeconomic status, such as education, income, and occupation [ 38 – 40 ]. Secondly, perception of income inequality was demonstrated to be a more consistent predictor of morbidity and mortality than absolute income [ 41 – 42 ]. Finally, research on the relationship between one’s financial situation and life satisfaction showed a weaker correlation between life satisfaction and wealth (between .12 and .15 depending on the study) and a stronger correlation between life satisfaction and subjective financial situation (between .51 and .53 depending on the study) [ 43 ].

In the context of the abovementioned research results, a question emerges about the causal direction between well-being and financial behaviours. For many years researchers assumed that the better people’s lives are, the more their needs are satisfied, and the happier they should feel [ 44 ]. However, recently, researchers have begun to consider if this dependency may be based on a different direction–perception causing better life performance [ 45 – 46 ]. This so-called top-down approach (instead of bottom-up) assumes that happier people are not only more satisfied with specific aspects of their life but also perform better in different life areas [ 47 – 48 ]. In a longitudinal study, students who were more satisfied with life in their first year of university, turned out to have higher incomes than their less happy colleagues 19 years later [ 49 ]. In another study conducted by Lyubomirsky and colleagues [ 45 ], the direction of the relationship from happiness towards success (and not the other way around) was demonstrated in various areas of life and using various methodologies (cross-sectional, longitudinal, and experimental).

The abovementioned studies clearly demonstrate that one’s perception of a given situation should be taken into account next to objective indicators. Therefore, it is worth investigating whether incorporating one’s subjective financial situation next to objective measures would allow us to understand financial decisions better than analysing the objective measures alone. Moreover, those studies demonstrated that in many life areas a causal relation does not move from facts to perception but the other way around, from perception to performance, that is, from the subjective to objective level.

Subjective financial situation

It is widely acknowledged that objective indicators of economic wealth might not always accurately reflect how people subjectively experience their financial situation [ 50 – 53 ]. Two people holding the same amount of wealth might perceive it differently, as their needs, aspirations, expectations or past experiences may be different [ 52 , 54 – 59 ]. Moreover, subjective economic well-being might be affected by the level of assets and debt [ 60 ]. Two people with equivalent net worth but composed of different levels of assets and debt might perceive their financial situation as different in terms of their wealth. Specifically, people with a positive net worth feel wealthier when they have a lower level of debt and consequently fewer assets. On the other hand, people with a negative net worth feel wealthier when they have more assets despite having greater debt.

The subjective financial situation has been referred to as, among many other terms, perceived economic well-being [ 61 ], financial satisfaction [ 52 ], financial well-being [ 62 ], and economic strain [ 63 ]. Although the positive relationship between objective and subjective measures of one’s wealth is well established, its strength varies among studies, with correlation coefficients between the two ranging from values near .25 [ 64 – 66 ] to .50 [ 55 , 67 – 68 ], with some even being nonsignificant [ 69 ]. Moreover, there are also people whose salaries are relatively high but who perceive their financial situation as bad and, in contrast, there are individuals who perceive their financial situation as extremely good even though it is objectively bad [ 51 , 53 , 70 – 73 ]. Some researchers term the latter case a satisfaction paradox [ 72 , 74 ], which corresponds not only to financial satisfaction but also to general well-being. In a nationwide representative survey conducted in Poland [ 71 ], both objective and subjective measures of financial situation were introduced. The results showed that in some cases (among some people), there were significant inconsistencies between subjective and objective financial situations. Further analysis showed that this phenomenon involved two types of individuals: financial pessimists and financial optimists [ 71 ]. Financial optimists were those who had the lowest income but perceived their financial situation as good. Financial pessimists were those whose income was two times higher than the optimists’ salary but perceived their financial situation as bad. Comparisons of these two groups of people showed that financial pessimists were generally more prone to complain about their financial situation, feeling that there were many things they could not afford, and having more financial problems (e.g., debts) than the optimists.

The lack of a strong relationship between objective and subjective financial situation suggests that there may be certain individual difference variables that contribute to the process of evaluating one’s financial well-being. For example, it has been shown that one’s attitudes toward money might affect the perception of one’s financial situation [ 54 , 75 ]. The process of social comparisons, especially regarding how people perceive their income in comparison to others, also plays an important role in the perception of own finances [ 76 ].

It has also been demonstrated that financial satisfaction is linked to a whole array of financial behaviors and characteristics of the consumer. Xiao, Chen, & Chen [ 77 ] examined the relationships between financial satisfaction and consumer financial capability (i.e., perceived financial capability, financial knowledge, and financial behavior) and demonstrated that financial satisfaction was positively associated with perceived financial capability, desirable financial behaviors and subjective financial knowledge. Additionally, financial satisfaction decreased risky financial behaviors. In another study [ 78 ], the association between financial satisfaction and the propensity to plan for long-term goals was examined and it was demonstrated that financial satisfaction, after controlling for socio-economic and other financial capability factors, made unique contributions to the propensity to plan for long-term goals. Moreover, financial satisfaction was also demonstrated to be positively associated with preparing a household financial budget [ 60 , 79 ].

The subjective financial situation impacts various domains of life. It is believed to be a subconstruct of general well-being [ 52 ] and was recently shown to influence investment decisions. A study conducted by Sekścińska, Rudzińska-Wojciechowska and Maison [ 80 ] revealed that male participants who perceived their financial situation as good (vs. bad) were more prone to invest. At the same time, their objective financial situation did not affect the propensity to invest.

Taking into account the abovementioned role of subjective financial situation in different areas of life decisions, we assumed that in regard to explaining having savings, subjective financial situation should be at least as important as objective financial situation or, in some cases, even more important. To test this assumption, we conducted a study using a large, heterogeneous sample. Participants’ objective (income) and subjective (perception of) financial situation were measured. Bearing in mind that there are people who do save regularly, but their amount of savings is low due to their low income, we decided to include two measures of having savings: whether one has savings or not and the amount of savings. In other words, we introduced two measures of having savings to differentiate between: (1) the amount of savings, which is a traditional indicator of saving practices, and (2) the propensity to have savings–(i.e., whether one has savings or not) which can be understood as a skill or a tendency to save. We predicted that both objective and subjective financial situations should be positively related to one’s propensity to have savings and the amount of money saved.

Based on the research reviewed above, which indicates that the objective measures may not accurately reflect how people experience their financial situation, we formulated the following hypotheses:

H1. Objective financial situation would be positively related to the propensity to have savings (dichotomous variable) and the amount of savings.

H2. Subjective financial situation would be positively related to the propensity to have savings (dichotomous variable) and the amount of savings even when controlled for the variance shared with objective financial situation and demographic variables.

H3. The effects of objective financial situation on the amount of savings, which is strictly related to the specific amount of money, should be stronger than the effects of subjective financial situation.

H4. The effects of subjective financial situation on the propensity to have savings, which is largely related to the mere intention to save money, should be stronger than the effects of objective financial situation.

Participants and procedure

The study was conducted via an internet research panel on a nation-wide sample. The participants were randomly selected from the panel users, and demographic structure of the sample was controlled in order to make it compatible with the structure of the Polish population. The quotas were selected based on the distribution of gender, age, education and size of town in the population of Poles. The sample consisted of 1048 respondents (550 women) between the ages of 18 and 69 ( M age = 42.96, SD = 14.82). Several measures and scales were presented to participants, including measures of subjective and objective financial situations, questions about propensity to have savings, amount of money saved and demographics (e.g., gender, age).

All participants provided their informed consent to take part in the research after reading detailed information about the study. Participants were asked to click on a link to the study if they agreed to take part in the research. Otherwise, they did not participate in the study. All participants of the panel are rewarded for their participation in every study with points, which can be exchanged for rewards of their choice. Each participant received exactly the same amount of points as for his/her participation in the study.

Two aspects of financial situation were measured. The first one was objective financial situation–reflected by the amount of monthly income of the household–and the second one was subjective financial situation measured in two ways, as a general evaluation of financial situation and as an assessment of household purchasing power.

The objective financial situation.

The objective financial situation (variable: objective FS ) was measured using one question: “Please indicate the average monthly net income of your household”. To avoid numerous missing values in the database, the answers to the question were given on a 7-point scale from 1 = less than 1000 PLN to 7 = more than 10 , 000 PLN .

The subjective financial situation.

The subjective financial situation was measured with two questions. In the question about general subjective financial situation (variable: subjective FS–general ), participants were asked to assess their material situation on a 7-point scale (1 = very bad to 7 = very good ). In the question about the subjective household’s purchasing power (variable: subjective FS–household purchasing power ), the participants were asked to indicate which out of five statements best describes their household financial situation, ranging from 1 = We do not have enough money for the most urgent needs to 5 = We have enough money , we do not have to save even for bigger expenses .

Having savings was measured by two different variables: in the traditional way, as an amount of savings held by the respondent, and as a propensity to have savings understood as having any savings, regardless of the amount of savings.

Amount of savings.

Amount of savings was measured as declared amount of savings the person has. Respondents indicated amount of savings using 10 intervals: from 1 = no savings to 10 = more than 100 , 000 PLN (2 = less than 500 PLN; 3 = 501–1000 PLN; 4 = 1001–5000 PLN; 5 = 5001–10 000 PLN; 6 = 10 001–20 000 PLN; 7 = 20 001–30 000 PLN; 8 = 30 000–50 000 PLN; 9–50 001–100 000 PLN; 10-more than 100 000 PLN).

Propensity to have savings.

Propensity to have savings was measured with one question: Do you have any savings ? The answer was coded as 1 = Yes or 0 = No.

Choosing these measures of objective and subjective financial situation, we were conscious of their limitations, especially that they might not exactly capture the same phenomenon. Objective financial situation referred only to income, but by asking a question about subjective financial situation we didn’t have control over what respondents could have in mind when answering this question (they might only consider income or also other things, e.g., properties). Nevertheless, we chose this form of question in order to entrench their simplicity.

Zero-order correlations

Zero-order correlations between variables and scale properties are presented in Table 1 . We found significant positive relationships between objective financial situation and (1) propensity to have savings and (2) amount of savings, which is in line with previous research linking objective financial situation (e.g., income) to saving [ 3 – 4 ]. Both indicators of subjective financial situation were also positively related to propensity to have savings and amount of savings. Objective financial situation was significantly positively related to both indicators of subjective financial situation (general and purchasing power).

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https://doi.org/10.1371/journal.pone.0214396.t001

Regression analyses

We performed a stepwise multiple regression analysis to investigate the relationships between financial situation measures (objective vs. subjective) and having savings (amount of savings or propensity to have savings). Moreover, we decided to test interaction effects between objective and subjective measures of financial situations on having savings, and thus, financial situation variables were mean-centered prior to the analyses. In both analyses, we also controlled for basic demographics (age and gender).

Saving: Amount of savings as an outcome variable.

First, we conducted a hierarchical multiple regression analysis to test the hypothesis that subjective financial situation (general and subjective household purchasing power) would be more strongly related to the amount of savings than objective financial situation ( Table 2 ).

https://doi.org/10.1371/journal.pone.0214396.t002

In Step 1, we introduced objective financial situation and demographics (gender, age). We found significant positive effects of age and objective financial situation on amount of savings.

In Step 2, we introduced variables coding subjective financial situation: general and purchasing power, and found their positive effects on amount of savings. After introducing subjective financial situation variables, we still found a significant (albeit weaker) effect of objective financial situation and a significant effect of age.

In Step 3, we introduced two two-way interactions between objective financial situation and (a) subjective financial situation: general and (b) subjective financial situation: perception of household purchasing power. We found significant positive effects of subjective financial situation (general and perception of household purchasing power) on amount of savings. We also found a significant positive effect of age. However, we found no significant effect of objective financial situation on amount of savings and a marginally significant interaction between objective financial situation and subjective financial situation: general. Simple slope analysis indicated that among people low in subjective financial situation (general), the effect of objective financial situation was positive but not significant, B = 0.11, SE = 0.10, p = .21 and was positive and significant among people high in subjective financial situation (general), B = 0.56, SE = 0.08, p < .001 ( Fig 1 ). Moreover, we also found a similar significant interaction between objective financial situation and subjective financial situation (perception of household purchasing power). Again, simple slope analysis indicated that among people low in subjective financial situation (perception of low purchasing power of the household), the effect of objective financial situation was positive but not significant, B = 0.14, SE = 0.09, p = .11, but was positive and significant among people high in subjective financial situation (perception of high purchasing power of the household), B = 0.57, SE = 0.08, p < .001 ( Fig 2 ).

*** p < .001.

https://doi.org/10.1371/journal.pone.0214396.g001

https://doi.org/10.1371/journal.pone.0214396.g002

Saving: Propensity to have savings as an outcome variable.

Second, we conducted a stepwise logistic binominal regression analysis to investigate the relationships between financial situation measures (objective vs. subjective) and the propensity to have savings. Moreover, we decided to test interaction effects between objective and subjective measures of financial situations on having savings, and thus, financial situation variables were mean-centered prior to the analyses. In both analyses, we also controlled for basic demographics ( Table 3 ).

https://doi.org/10.1371/journal.pone.0214396.t003

In Step 1, we introduced objective financial situation and demographics (gender, age). We found a significant positive effect of objective financial situation and no significant effects of age or gender on propensity to have savings.

In Step 2, we introduced variables coding subjective financial situation: general and perception of household purchasing power and found their positive effects on propensity to have savings. After introducing subjective financial situation variables, the effect of objective financial situation on propensity to have savings became only marginally significant.

In Step 3, we introduced two two-way interactions between objective financial situation and (a) subjective financial situation: general and (b) subjective financial situation: perception of household purchasing power; none proved to be significant. However, we still found a significant positive effect of subjective financial situation (general and perception of household purchasing power) on propensity to have savings.

In this research, we investigated the role of objective (i.e., income) and subjective (i.e., perception of) financial situation in having savings. We conducted a study on a nation-wide sample that reflected the demographic structure of the Polish population. The results of the study confirmed our assumptions and showed that both objective and subjective financial situations are important predictors of having savings. However, the positive link between objective financial situation and having savings became weaker (DV: amount of savings) or insignificant (DV: propensity to have savings) when subjective financial situation was accounted for.

In line with previous findings [ 22 , 69 , 81 – 87 ], an objective financial situation was positively linked to the amount of money individuals saved. Even after introducing subjective financial situation, the effect of objective financial situation on the amount of savings was still significant, although slightly weaker. Nevertheless, the interaction between subjective and objective financial situation was also significant: specifically, we found that the objective financial situation was only significantly positively related to the amount of savings among those people who had high scores on subjective financial situation. Thus, the results showed that subjective financial situation is a very important factor related to the amount of money people save. Thus, it is possible that when one earns more money but perceives his/her financial condition as rather weak, he/she would not necessarily be more likely to have savings than those who earn much less.

The same pattern of results was observed irrespective of the method of measuring subjective financial situation, either in general or as perception of household purchasing power. These results shed new light on previous findings, which mainly focused on the positive relationship between the objective financial situation and the amount of savings. Although objective financial situation was significantly positively related to the amount of savings, this was especially the case among participants with high scores on subjective financial situation. Thus, those who have more money at their disposal have more savings, but only as long as their perception of their financial situation is good. These findings can be partly explained by Bandura’s self-efficacy theory [ 88 ] according to which there are people more (vs. less) prone to believe that they have the ability to influence their lives and, thus, achieve their goals. Previous research [ 89 ] showed that self-efficacy is positively related to optimism. Thus, it is possible that individuals high in self-efficacy who believe they have the ability to influence the events of their own lives would also be more prone to be financial optimists and perceive their financial situation as relatively better than those who score low on self-efficacy scales (i.e., financial pessimists). This mechanism can further lead to different financial decisions (also related to having savings). Such positive perceptions of one’s abilities in the financial domain may in fact lead to a better perception of one’s financial situation and, as a result, evoke saving behavior. Still, further empirical investigation is needed to test these assumptions.

We found a similar pattern of results when analyzing whether a participant has any money saved independently of the amount of money saved (propensity to have savings) as a dependent variable. These results show a similar pattern, although they are stronger, and their implications are slightly different. The first step of the analysis showed a positive relationship between objective financial situation and propensity to have savings (similarly to the results when amount of savings was the dependent variable). However, after we introduced subjective financial situation into the equation, we found a significant effect of subjective financial situation on propensity to have savings, whereas the effect of objective financial situation was no longer significant. This result means that subjective financial situation is strongly linked to the propensity to have savings. It also means that whether people have any savings or not might be independent of the amount of money they earn. If someone has very little money at his/her disposal but has a very high propensity to have savings, it is very possible that he or she will have some money put aside. An important consequence of this characteristic is that if someone has the propensity to have savings, and their income rises, his/her savings will also rise. However, if someone has no propensity to have savings, regardless of the amount of money earned or obtained from other sources (e.g., inheritance or a lottery win), he/she will probably have no savings.

Our study clearly demonstrated that objective and subjective financial situation are significantly, though not strongly, related to each other. Thus, it seems crucial to account for not only objective but also subjective financial situation when analyzing financial behaviors. In some cases, for example, propensity to have savings, perceptions can take on an even greater importance than objective measures.

Limitations and further research

Although the present study is based on a large, heterogeneous sample and brought several interesting results, it has some disadvantages and limitations. Firstly, we relied solely on self-reported data. Therefore, the present study has all the limitations that are characteristic for self-report measurements. Secondly, as the study was based on cross-sectional data, no assumptions of causality can be drawn from the results. Although it is probable that subjective financial situation provides bases for financial decisions, it is also possible that a reassuring awareness of having some money put aside in case of a rainy day impacts one’s perception of one’s financial situation. It would then be highly desirable to apply an experimental design in future studies to establish the direction of the described relationship. Moreover, the study was focused on one aspect of saving practices–it investigated whether one has some money put aside for the future and, if so, how much it is. We did not control where the money came from, specifically whether it was actively accumulated or, for example, inherited or won in the lottery. However, regardless of the source of the money, the fact that it is perceived as ‘savings’ means that the consumer is prone to put and keep money aside rather than consume all the available resources. Nevertheless, further studies are needed to investigate how one’s subjective wealth is linked to other saving practices. For example, they could take into account the strategies that consumers use in order to accumulate savings, saving motives or saving horizon.

Finally, one might argue that the subjective and objective measures of participants’ financial situations are not parallel and not focused on similar aspects of one’s wealth, as the objective measure captures only information about participants’ income, whereas subjective assessment also captures information about assets and a relation between income and expenses. It is possible that subjective measures reflect more information than objective ones, as participants take into account large amounts of data when answering a single question about the perception of their finances. Thus, future research would do well to measure objective financial situation in a more developed and precise manner, for example, by asking about different dimensions of this phenomenon (i.e., going beyond income and focusing on a broader aspect of financial assets). Also, when it comes to methodological improvements, some of the variables in our study (e.g., the amount of savings) were measured with the use of an interval scale. Future work would do well to measure similar variables by asking about the exact amount of money (earned or saved).

Despite the acknowledged limitations, the present study opens several avenues for further research. Apart from the directions indicated above, a dynamic nature of individual financial circumstances should be taken into account. Repeated measures of subjective wealth over the course of life will enhance the understanding of determinants of saving decisions. Moreover, there is a need to verify to what extent the perception of finances is related to other financial decisions, such as spending, borrowing, insuring or investing. Finally, when planning further research on the satisfaction paradox , it would be worth considering the results of research [ 71 ] that has shown that there are two types of consumers in relation to their finances: financial pessimists and financial optimists. Future research might investigate the differences in attitudes and saving behaviors of these two groups.

Practical implications

In the context of saving behavior, a very important question is how to increase the amount of savings in society. Many studies based on declarations provide results that are, to some extent, misleading, indicating that saving behavior can be obtained directly by increasing the wealth of a society. However, our study suggests that augmenting saving in society could probably be achieved more indirectly by influencing individuals’ positive perceptions of his/her financial situation. Such an indirect effect can be achieved, for example, by mental training related to perceptions of one’s financial situation. This possibility is an important conclusion for financial counselors who work with people to increase financial well-being.

The results of the described study also have more general implications related to marketing research. In the majority of marketing strategies, target groups for products are usually defined by level of income, assuming that people with a higher income will use more expensive products or prefer more luxurious brands than people with a lower income. The results of our study suggest that subjective financial situation can be at least as important a factor in explaining what people do with their money as objective measures.

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Financial Literacy

Course: financial literacy   >   unit 2.

• Why and how to save
• Why and how should I save money?
• Planned and unplanned expenses
• I am ready to save. What is the next step?
• Saving wisely: emergency fund
• Emergency fund

Saving wisely

• Saving wisely: planned expenses
• Paying yourself first
• Pay yourself first
• What are different types of savings accounts?
• What is interest and how does it work?

What are planned expenses?

• Figure out what you need to save for: Whether it's a vacation, a new car, or a college education, set a goal so you know how much you need to save. In this example, let's plan on saving for holiday shopping.
• Set an amount and a time frame for your goal: Let's say the holiday season just ended and you have 11 months left before you need to start shopping for gifts again. This year you spent about $ 550 ‍   on gifts for your immediate family. This means you need to start saving $ 50 ‍   each month, or roughly $ 11 ‍   per week. Explain To figure out how much to save per month , take the amount you are trying to save and divide it by the number of months. In this example, $ 550 ‍   ÷ ‍   11 ‍   = $ 50 ‍   per month. To figure out how much to save per week , take the total amount and divide it by 52 (number of weeks in a year). In this example $ 550 ‍   ÷ ‍   52 ‍   = $ 10.58 ‍   , rounded to $ 11 ‍   per week.
• Put your money in a separate account: This will help you avoid spending it on other things. There is no limit on how many accounts you can have, so consider having an account for each planned expense. This helps you keep an eye on each account separately, and will give you a better idea how close you are to reaching your goal.
• Make saving automatic: Consider setting up an automatic transfer from your checking account to your savings account each month or week. It is least noticeable if you schedule it on the same day you are getting paid. This way, you won't have to remember to transfer the money yourself.
• Adjust your budget, if needed: If you're having trouble saving enough each month, take a look at your budget and see where you can cut expenses. For example, if you go out to eat twice a week, you could reduce that to once a week and put the extra money into your savings account.
• Be patient: Saving for a big expense can take time, but it's worth it in the end. Stay focused on your goal and resist the temptation to dip into your savings for other things.

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1. Discuss Wants vs. Needs

2. let them earn their own money, 3. set savings goals, 4. provide a place to save, 5. have them track spending, 6. offer savings incentives, 7. leave room for mistakes, 8. act as their creditor, 9. talk about money, 10. set a good example, the bottom line.

• Financial Literacy
• Financial Literacy Resource Center

10 Tips to Teach Your Child to Save Money

Start their financial education early

The habit of saving money may be a crucial life skill, but it’s not one that always comes easy. In fact, a 2022 survey by LendingClub found that as many as 64% of American adults were living paycheck to paycheck, with little or no money set aside for future needs.

There are good and serious reasons why families may fall into this trap, but the savings habit is an important one to help kids establish when they are young . Teaching them about delayed gratification when it comes to money can help them guard against unnecessary spending and learn to value establishing control of their money. With that in mind, here are 10 steps you can take to get your kids on the saving bandwagon.

Key Takeaways

• Saving money is a habit that parents can teach their children at a young age.
• The first step is to explain important concepts such as savings, a budget, and goals—then keep the conversation going.
• Giving children an allowance can teach them the value of money—and of hard work, if chores are involved.
• Younger children might keep their savings in a piggy bank, but older ones might want to keep their money in a bank or on a debit card while working on their goals.
• Children can learn the importance of living within their means, which is one of the basic tenets of saving.

The first step in teaching kids the value of saving is to help them distinguish between wants and needs. Explain that needs include the basics, such as food, shelter, basic clothing, healthcare, and education. Wants are all the extras—from movie tickets and candy to designer sneakers, a bicycle, or the latest smartphone.

You can even quiz them on items in your home to drive home the concept. For example, point out items in their bedroom or the kitchen and ask them whether the object is a need or a want. This allows you to explain the idea that you have to prioritize what you spend money on, leaving some money for future necessities.

More than three-quarters of parents said they paid their children an allowance in 2022, according to a survey by T. Rowe Price, with kids earning $19.39 per week on average. If you want your children to become savers, allowing them to earn and save money provides them with the opportunity to learn how to use it. When you offer allowances in exchange for chores, they’re also learning the value of their hard work.

To a kid, being told to save—without explaining why—may seem pointless. Helping children define a savings goal can be a better way to get them motivated.

If they know what it is they want to save for, help them break down their goals into manageable bites. If they want to buy a $50 video game , for example, and they get a $10 allowance each week, help them figure out how long it will take to reach that goal, based on their savings rate . 

When your children have a savings goal in mind, they’ll need a place to stash their cash. For younger kids, this may be a piggy bank, but if they’re a little older, you may want to set up their own savings account at a bank or even get a kid-friendly debit card . Cards by the likes of FamZoo, gohenry, and Greenlight notify you when they make purchases and allow them to create their own savings goals.

Part of being a better saver means knowing where your money is going. Tracking expenditures is a little easier with a bank or debt card app, but you can also do it the old-fashioned way.

If your children get an allowance, having them write down their purchases each day and add them up at the end of the week can be an eye-opening experience. Encourage them to think about how they’re spending and how much faster they could reach their savings goal if they were to change their spending patterns.

One of the reasons people save in their employer’s retirement plan is the company’s matching contribution . After all, who doesn’t like free money? If you’re having trouble motivating your kids to save, you can use that same principle to ramp up their efforts.

If your child has set a big savings goal—for example, a $400 tablet—you could offer to match a percentage of what they have saved. As an alternative, you could offer a reward when your kid reaches a savings milestone, such as a $50 bonus for hitting the halfway mark.

Part of putting kids in control of their own money is letting them learn from their errors. It’s tempting to step in and steer kids away from a potentially costly mistake, but it may be better to use that mistake as a teachable moment . That way, they’ll know in the future what not to do with their cash.

One of the basic tenets of saving is to not live beyond your means. If your child has something they want to buy and feels impatient about saving for it, becoming your kid’s creditor can help to teach a valuable lesson about saving.

Say your child wants to purchase something that costs $100. You could “lend” the money and require payment from the allowance that you provide, with interest . The lesson you want to teach is that saving may mean delaying gratification longer, but the item you want to buy will end up costing less if you wait.

In a 2022 T. Rowe Price survey, 37% of parents said they don’t like to talk with their children about money, with many expressing embarrassment about bringing up the topic. However, if you want kids to learn about saving, you have to nurture an ongoing discussion. Whether you schedule a regular weekly check-in to talk about money or make money chats part of your daily round, the key is to keep the conversation going. 

The percentage of families that went from a two-income household to a single income as a result of the COVID-19 pandemic.

The T. Rowe Price survey found that 51% of parents realized that they do not have enough of an emergency fund. If you want your children to become savers, being one yourself can help.

Getting your emergency fund in shape, opening a 529 savings account , or simply increasing your 401(k) plan contributions are all steps that you can take to encourage saving as a family activity. You could also decide to save for something together, such as a big-screen TV, a family vacation, or a pool.

How Can Parents Encourage Their Kids to Save Money?

One way to encourage kids to set aside some of their money is by providing a place for them to save. For younger kids, that may mean getting them a piggy bank; older kids can open up a bank account or debit card of their own. You can also pay them interest on what they save, providing an incentive to set aside money for the future.

What Are Barriers to Teaching Kids About Saving?

Research suggests that many parents are reluctant to even talk about money with their kids. A 2022 survey by T. Rowe Price found that 37% of parents avoided those conversations. To teach healthy behaviors regarding money, moms and dads have to find a way to discuss the subject at home.

How Can Parents Teach Kids to Distinguish Between Needs and Wants?

Parents can quiz younger children on items found in their own home—from kitchen utensils to clothing to toys—and ask them whether it’s something the family needs or simply wants. By drawing that distinction, kids start to get a sense that some purchases should be a higher priority than others.

If you’re a parent, making saving a regular part of your child’s routine can lay the foundation for a bright financial future . Building healthy habits at a young age makes children more likely to grow into adults who experience much less financial stress than people who didn’t grow up with this kind of training.

LendingClub, Investor Relations. " 9.3 Million More Consumers Ended 2022 Living Paycheck to Paycheck Than in 2021 ."

T. Rowe Price. " 14th Annual Parents, Kids, and Money Survey ." Page 87.

T. Rowe Price. " 14th Annual Parents, Kids, and Money Survey ." Page 79.

T. Rowe Price. " 14th Annual Parents, Kids, and Money Survey ." Page 31.

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Question asked by Filo student

37. Case Study - 2 Saving money is a good habit and it should be inculcated in children from the beginning. A father brought a piggy bank for his son Aditya. He puts one five-rupee coin of his savings in the piggy bank on the first day. He increases his savings by one five-rupee coin daily. (i) If the piggy bank can hold 190 coins of five rupees in all, find the number of days he can contribute to put the five-rupee coins into it (ii) Find the total money he saved. OR If 6 times the 6 th term of an A.P., is equal to 9 times the 9 th term, find its 15 th term.

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Building good money-saving habits as a college student

Financial literacy can make a big impact on your life and your future success, paving the way to achieving your most desirable goals. Learning how to properly save money as a college student is a major part of that journey, and the hardest part is figuring out where to start.

Don’t Budge on a Budget

Budgeting basics allow you to have a clear picture of how your income matches up with your expenses, a crucial part of responsible money management. Wells Fargo helps simplify the matter with their blog “ Budgeting for college students”.

• Keep track of expenses. Good budgeting means being honest with yourself about where your money goes each month. Before creating a budget, keep a spending log for a month or two where you record everything you spend money on and the amounts. This will help you figure out a more accurate baseline for what to set your budget limits to and where you can think about cutting back. There are lots of free budget apps available to make creating and sticking to a budget simpler than ever before.
• Love it and list it. Making a list of your income and expenses is key to having a fully realized picture of your financial security. It is helpful to start by considering your monthly income. Include what you earn from a job, federal Work-Study, financial aid and scholarships. You may want to include a line item pertaining to any assistance typically given by family members, such as an allowance. If you have any side jobs, such as babysitting or similar work, you may wish to make note of an average monthly income brought in from that.
• You then will need to list your expenses based on your spending log. It’s helpful to separate your expenses into categories, such as housing, food, entertainment, education, etc. If you have assistance from family members or others with some of these categories, you may wish to make note of what is being covered versus what is your remaining responsibility.
• It might be helpful to you to use this information to see how much you need to cover your expenses for each quarter, including visiting home, class materials and groceries. If you have money remaining, it is a good idea to consider saving a good portion of it to cover potential unforeseen expenses. If it seems like you will be low on funds before the end of the quarter, look at your spending log again and see areas where you can cut back. Maybe cook a few more meals a week at home or curb an expensive Starbucks habit. Purchasing or renting used textbooks instead of new ones is also a good way for college students to save.
• Flexibility is essential. Expenses will fluctuate over time, especially as inflation rises nationwide. Make a point to revisit and revise your budget periodically, especially in the wake of major changes like a rent increase or tuition grant.

Savings Tips

(Adapted from CNBC article “Quick tips to help college students start saving money”)

• The sooner you start saving money – preferably in a dedicated savings account – the better off you will be. This is primarily due to the concept of compound interest, meaning your interest begins to earn interest. Even if you have a lower interest rate, your money will grow over time, so someone who starts saving at 22 is in a better position than a 32-year-old just starting to save.
• It doesn’t have to be a big chunk that you put away every month. Find some ways to save by looking at where you can afford to spend less. Cut down on discretionary spending and do your best to follow the 50/30/20 rule. This means 50% of after-tax income goes to necessary items, 30% to simply wanted, fun items and 20% into your savings account. If you don’t have much income to speak of, give up small daily items and put that toward savings. It’s not much, but it will build up over time, and the important thing is to train yourself to the healthy habit of saving.
• Automate your savings. You can set up monthly or weekly contributions to your checking to savings account or alter your direct deposit settings so that a portion of your check goes to your savings account. It makes it easier for you to remember to save.
• Consider using a round-up savings app such as Acorn . These apps round up your purchases to the nearest dollar then take that remainder amount and deposit it into your savings account or put it toward an investment account as you designate. These apps allow you to build up savings and/or investments over time without having to worry too much about it. They may require a small monthly fee, however, so take note of that before signing up.

Forming solid money habits now will make it easier to manage larger financial challenges after graduation. Happy budgeting and saving!

Slice of LIFE  is an invitation to and extension of everything happening at  Life University . Whether you are a current student, a potential freshman or a proud alum,  Slice of LIFE  can help keep you connected to your academic community. Know of a compelling Life U story to be shared, such as a riveting project, innovative group or something similar? Let us know by emailing  [email protected] .

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What's the importance of saving money and why should you do it.

Rishika Mukherjee

Created on 23 Jun 2020

Wraps up in 5 Min

Read by 12.1k people

Updated on 26 Aug 2020

Saving money is one of the essential aspects of building wealth and having a secure financial future. Saving money gives you a way out from uncertainties of life and provides you with an opportunity to enjoy a quality life. Wealthy people have a great habit of saving money and controlling their expenses to grow wealth.  "If you don't find a way to make money while you sleep, you will work until you die." – Warren Buffett For example, Warren Buffett is one of the world's richest men. He knows the importance of saving money, So he values money and always practices spending money wisely. However, if you look around and find out that one who is financially secure can enjoy life with a peace of mind and achieve dreams, one fact that comes out financially stable can enjoy life with a peace of mind.  Here are the few benefits of savings which will help you understand the importance of saving money:-  

Peace of mind: Everyone wants peace of mind, but it doesn't happen automatically. Saving money can help you with this. When you are financially secure, you will get a good sleep because you know that you can afford higher education, a new house/car, medical expenses, and ready to face any uncertainties. But without saving money, you will not have enough funds to lead a quality life. That gives sleepless nights, and you will not have peace of mind. So saving money is essential to drive quality and stress less experience.

Makes you Retirement Ready : People who start saving early for the future can retire early. If you're young, it might seem ridiculous to think about your retirement now. But everyone wants to retire at some age in life. To live happily and stress-free at that time, you need to start saving today. Many retirees who rely on a pension usually do not have enough to cater to all their needs—hence making a habit of saving some part of income over several years can accumulate into a retirement fund, which makes your retirement more comfortable.  

Helps in emergencies : Saving money can help you from unexpected circumstances. You don't know what will happen to you next minute. Emergencies are always surprising. Therefore, when they occur, the funds are usually not part of the regular budget. There will be pressure to look for extra funds in short notice. These expenses can come in many ways, such as sudden hospitalization, job loss, accident, repairs, and so on. This type of emergency requires much money. Hence savings allow you to pay for these without going to massive debt like personal loans or credit card bills. Money starts working for you:  Most of us put hundreds of work hours each year to earn money. It feels great when you know that money works for you. If your savings are invested in the right place, your money starts working for you. Over time, you'll need to work less as your money works more, and eventually, you might be able to stop working altogether.  Well, what does money work for you mean? When you save money and invest in some income-generating products like Mutual funds, equity, and so on. You will earn interest in the money invested every year, which gets compounded and builds a vast corpus.  

Limits Debt: When you have some amount in your savings, it helps you limit the debt burden. Savings can be used for financing certain expenses instead of using credit cards or taking a personal loan. This decreases and limits the amount of debt liability and also saves the amount that could have been spent on interest. Moreover, savings will also help to avoid taking any emergency loans when an unexpected event occurs. Savings will also help you pay off your loans and mortgages early. Thus saving helps you to achieve a debt-free life.  

Helps to achieve your Dreams: Everyone has some dreams to succeed in their life, but only a few of them will be able to make it. You may have dreamed of owning a big house, travel around the world, a grand wedding, or something else. But to achieve these dreams, you need the right amount of money. By setting a goal and saving money for the future will help to make your dreams. You can also be among the list of successful persons who achieved their dreams. Hence, regular saving can give you the key to fulfilling your dreams.  

Financial Independence:   The one thing being rich or wealthy means to most people is financial independence and savings to depend on. One of the best parts of life is being independent and having the freedom to do what you want when you want. This may mean being able to take a vacation whenever you want to, leaving work and going back to college to switch careers, taking a job that is more personally satisfying than financially beneficial or starting your own business. But the less you save, and the more debt you accrue, the less independence you will have. So, if you want to be financially independent, you need to save.  

Helps to finance down payment of mortgage : When you want to buy a house or a car through a loan, you need to pay a certain percentage before the loan is approved. This amount is not allowed to borrow. Hence you must save this money or lend it to family/friends. Saving will be the best option among these because family or friends may not have the necessary fund. Saving will also reduce the amount you need to borrow, making your mortgage payments more affordable. Bottom line: There are many reasons for you to save, but we got to know the importance of saving money from the above discussion. When you know that you have your financial needs under control, you can live a secure, happy, and quality life. Therefore, saving is an essential tool that will make your future financially stable. Hence develop the habit of saving and start as early as possible.  Saving doesn't mean that you cut your needed expenses extremely. Rather avoid costs that are unnecessary or not much outstanding such as watching movies or dining out frequently.

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Living within – or below – your means can feel like a constant battle. Even if you track your spending, regularly review your budget and have a savings plan, it may seem like you’re still not getting ahead. The reason could be some modern spending habits, and you may not even realize what you’re doing.

Here are three things that can work against you if you’re not careful.

Spending Money Based on Social Media

According to the Charles Schwab Modern Wealth Survey 2023 , a third of people (33%) make purchases based on what they see their friends and influencers share on social media. Gen Z is the biggest culprit, with 55% saying their purchase decisions are based on the latest TikTok trend or other social media content.

Getting Financial Advice from Influencers

Like spending money, a third of people surveyed said they decisions based on what they see on social media. Again, GenZ is the most likely to do this, with 50% making investing decisions and 46% making financial decisions based on advice from friends or social media influencers.

Keeping Up With The Joneses

The idea of spending money you don’t have to fit in with your peers is not a new fad, but social media can exacerbate this unhealthy money habit. A recent study found that 30% of millennial and Gen Z consumers went into debt so they wouldn’t feel left out.

Bottom Line

Social media may not be the enemy of good financial habits, but it can pose a risk. When you’re constantly bombarded with influencers, friends and family sharing their most recent purchase or vacation, it’s hard not to feel like everyone has everything you don’t. But you’re not seeing the whole story or getting all the information.

Instead of making decisions without the whole picture, make financial decisions based on your situation and long-term goals. It’s fine to scroll through TikTok or Instagram to see trends and the latest ideas, but think twice before adding them to your cart if you want to reach your financial goals.

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