Why do some people succeed at saving while others do not? Read that carefully. I'm not asking why some people are successful investors while others are not. What I'm asking is why do some people save while others do not save. Or if they do save, it's not much more than whatever they are forced to do through EPF or NPS or tax-saving etc? They never make the choice of saving.
This is something that all of you would have observed. With some people it almost seems like a law of nature that they will save while with others it seems to be the opposite. I'm sure you can think of many explanations and so can I. These explanations may or may not be correct. There may be many different explanations, which apply to different people. It does not matter, it's not very interesting actually.
What IS interesting is whether the non-savers can be converted into savers. Those of us who are non-savers, what do we do when we become self-aware of this unfortunate condition, and would like to fix it? It isn't easy to drop a lifelong habit. It is a habit, you know. In fact, come to think of it, not saving may have more in common with addictions like smoking than anything to do with finance. Which means that what we are talking about has more to do with human behaviour and psychology than with anything else.
Therefore, this is about breaking one habit and taking up another one. Drawing graphs of compounding returns and SIP growth is fine for those who already have the habit of saving, but it does little to actually convert those who do not yet have the habit. As it happens, habit creation is something that a lot of people from psychologists to self-help authors have paid much attention to. Of course, 'self-help author' sounds a little disparaging but personally, I believe--with experience--that for a subset of readers, and a subset of authors, self-help books really do help.
About a couple of years ago, I'd written about a book named 'The Power of Habit', by Charles Duhigg. The book details--through anecdote and science--how our routine behaviour is driven mostly by habit or the absence of habit. It also delves deep into how habits get created and changed, and how this can be achieved consciously. Duhigg's book convinced me that investing was not a choice in the normal sense but a matter of habit. However, the how-to part of that book was hard to work at.
Recently, I came across another book, one by a social scientist named BJ Fogg. Fogg is the founder and director of the somewhat ominously named Stanford Persuasive Technology Lab, which was later renamed as Behavior Design Lab which means the same thing. He has written a fascinating book called Tiny Habits. The book goes deep and yet easy into the process of conscious habit formation. Of course, the actual anecdotes and examples are all from the kind of things that people commonly struggle in terms of habits. However, everything that Fogg describes fits very well into modifying personal financial behaviour. It's hard to briefly lay out the methodology that Fogg prescribes in a way that it can be followed here, nor am I going to attempt to short-circuit an entire book in a few hundred words. Fogg says that there are three ways to change behaviour: have an epiphany, change the environment, or to create tiny habits. It goes without saying which is the only one achievable for almost all of us.
However, it is well understood by those who do not save that all you have to do is to make a beginning. If you have gotten as far as reading my columns that you probably also know that the ideal first habit to form is to start investing a small regular amount through an SIP. To those who haven't done it, it's hard to believe how change builds upon change and how behaviour changes. Tiny Habits can help.