I have a 65-year-old friend who is planning on retiring soon, and he is also planning on being dead by age 80. That’s his financial plan. He has enough money in savings to finance 15 golden years in some comfort, and he is wagering on the fact that men in his family are not long-lived.
That’s one kind of financial planning, but what if he’s wrong? Paradoxically, this friend is healthy and fit, and works hard to stay that way. So maybe he will defy the longevity statistics and live a long—and destitute—life.
The fact is, retirement planning is a riddle, and millions of Baby Boomers are learning that they simply don’t have enough information to make sound decisions. We don’t know the hour of our death—or even the decade in most cases—so we don’t know how long our money needs to last, which means we have no idea how much to put by.
Given this conundrum, some people simply throw up their hands and live for today. They spend their money, and pay little attention to their health. Those include the nearly half of all retirees with zero savings. Others are more prudent, denying themselves certain luxuries today to secure their financial future. But what makes some of us prudent and others care-free?
Psychological scientists are very interested in the dynamics of future planning, in part because people are so bad at it. There is circumstantial evidence that people who are financially irresponsible also take poor care of themselves—smoking more, eating lousy, rarely exercising—while the financially secure are also healthier. Is it possible that a single underlying trait is shaping behaviors that promote both health and wealth?
That’s the idea that two scientists at Washington University in St. Louis have been exploring. Lamar Pierce and Timothy Gubler have been focusing on a particular style of thinking, called temporal discounting, that they believe may be key to both financial well-being and health. Simply put, people who take a long perspective and value the future are more apt to do things that make that future a good one, while those who discount the future focus on immediate desires and needs.
That’s the theory, which Pierce and Gubler tested in an elaborate study involving real working Americans’ lives and decisions. They arranged to work with a large industrial laundry with facilities in several states. The company had recently instituted a company-wide wellness program that offered annual health screenings, including 42 blood tests and a survey of health habits. The scientists gathered data over two years on more than 200 workers.
The idea was to see if these workers’ financial prudence—or lack of it—predicted their efforts to stay healthy. So to start, the scientists gathered information on all the employees’ contributions to the company’s 401(k) plan. The company had a 6 percent default plan—that is, unless otherwise specified, workers contribute 6 percent of their salary to the plan, which is tax-exempt and matched by the company. The laundry workers averaged only about $39,000 a year, so while the company match is an effective raise of 6 percent, it shows up in the workers’ paychecks as a slight but unwelcome cut in take-home pay. In other words, it is a good measure of time perspective in decision making.
The scientists wanted to compare 401(k) contributors and non-contributors on a particular kind of health measure—how much they were willing to change a documented health risk. They scientists used the initial health screening to “shock” the workers into an awareness of their risks. This was not hard to do, since almost all of them had at least one abnormal blood test—unhealthy cholesterol or glucose levels, for example—and one in four had an extremely abnormal result. Nurses delivered any bad news, and asked for permission to send the results to the worker’s personal physician—adding to the shock. Workers also received a report card on risky health behaviors, anticipated future health risks, and personalized suggestions for health improvement.
Then they followed the laundry workers for two years, to see if any of them took steps to address health risks in their initial reports. The idea was to see if any such changes were correlated with financial planning.
And they were, clearly. As reported in a forthcoming issue of the journal Psychological Science, those who saved for the future by contributing to a 401(k)—these were the workers who successfully improved their lab results and corrected unhealthy lifestyles over the course of the study, resulting in fewer sick days. Indeed, they improved about 27 percent more than non-savers on these health measures.
Pierce and Gubler are not insensitive to these laundry workers’ financial plight. It’s hard to get by on $39,000 and every dollar counts today. But they ran an analysis that rules out the possibility that urgent need is what links poor savings and poor health. Instead, the findings suggest that a more fundamental and robust underlying trait—a way of thinking about time–contributes to both financial and bodily health.
This is good news, but only for those who are predisposed to think to the future. For those who don’t, it’s bad news, because such underlying cognitive styles are highly resistant to change. This was evident in the laundry workers’ savings patters. Even though this company used a default strategy to nudge all workers into prudent savings, many did the paperwork to drop out of the savings plan soon after. They did not see increased future wealth as a good tradeoff for a poorer payday.
Follow Wray Herbert’s reporting on psychological science in The Huffington Post and on Twitter at @wrayherbert.