Look after your future self

Planning for retirement is one of the most important financial decisions we make, yet many of us struggle to prioritise it. The reason lies in human psychology. We’re wired to focus on the here and now a tendency known as temporal discounting which makes it difficult to value rewards that are far in the future.

Psychologist and author NUALA WALSH explains that this bias affects everything from how we save to how we eat and even how we vote. Faced with the choice between a smaller benefit today and a larger one tomorrow, most of us go for the immediate option even if we know it’s not in our best interests long-term.

But there are practical ways to shift this mindset. One strategy is to make specific plans around future behaviour such as when and how you’ll invest or save which helps bridge the gap between good intentions and action. Another is to vividly visualise your future self. If skipping a contribution now means fewer holidays or an ageing car in retirement, the trade-offs start to feel much more real.

Key takeaways

Temporal discounting leads us to undervalue future rewards and over-prioritise present gratification.

Creating specific action plans — “when, where and how” — helps close the gap between intention and follow-through.

Visualising the long-term consequences of not saving or investing can make future trade-offs more tangible and motivate better decisions today.

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Transcript

Robin Powell: One of the biggest obstacles to providing for our retirement is that human beings are very focused on the present. Given the choice between investing more money for the future and immediate gratification, we are hardwired to favour the latter. It’s a phenomenon that psychologists call temporal discounting.

Nuala Walsh: Temporal discounting, in effect, just refers to our normal tendency to just undervalue delayed rewards compared to whatever you got immediately. So in, you know, in tests and in real life, we find that most people would prefer a 10% pay rise today rather than 15 or 20% next year. What they want is the certainty of today's reward over the uncertainty of tomorrow's future gains.

So we anchor to the current stage when we're evaluating different options. So it's the here today what tomorrow's notion. You know, it explains everything from investing to one night stands or gambling just as much as the savings crisis or indeed that the climate crisis.

RP: Behavioural biases are deeply ingrained within us. Our brains have just evolved that way. But there are things you can do to counter these biases, and temporal discounting is no exception.

NW: The first one that I like and I find it easiest to think about is implementation intentions. And that just involves specifying when, where or how you're going to activate a certain outcome. Why and when are you going to. So the strategy overcomes the impulse to choose the immediate reward by providing a concrete plan that we delay. So we all know about the behaviour intention gap. We think we go to the gym, we think we do things, but we don't.

And this has been really successful in voting experiments. When you ask people when you will vote, where will you vote? The outcome is very different. I use this at home quite a lot. Robin, I think, is very useful in families when someone doesn't want to do something, when you do this and people mentally commit to doing whatever it is you're asking them to do. So it's actually one that's very useful.

RP: Nuala Walsh has another suggestion for tackling the urge for immediate gratification. It’s to visualise the future. Think, for instance, about what your life will be like in retirement if you don’t invest enough for it now.

NW: If you tell someone who takes a solemn holiday once a year and they change their car, say, every five years, but if they don't save a lot for retirement, if they don't invest now for the future that the future state, they'll only be able to take a holiday every three years and maybe only be able to change their car every ten years.

Now, that really hits home because some you're thinking, well, no, I can I go my holiday every year? It's only every three years and the car every ten years or whatever, even every 15 years. It depends obviously, whatever income you're talking about. But when you visualise that future, bring it back to real consequences. For today, what you're doing is you're shifting the temporal frame and making it easier for people to rethink about those decisions.

RP: Of course, there is a balance to be struck between investing for the future and enjoying the present. Having a robust financial plan will help you to find that balance. Putting off thinking about it certainly won’t.