\u201cDon\u2019t Worry, Be Happy\u201d \u2014 it\u2019s both an earworm and, as it turns out, sound financial advice.<\/p>\n
That\u2019s because data shows that people who are optimistic save more money for the future than those who aren\u2019t \u2014 especially when it comes to low-income earners.<\/p>\n
Research published earlier this year by the American Psychological Association (APA) studied the optimism levels and savings habits of 140,000 participants from the U.S., Israel and across Europe. It found that \u201coptimism significantly predicts greater savings over time\u201d and that \u201camong lower income individuals, optimism is more strongly associated with saving.\u201d (1)<\/p>\n
In hard numbers, the study showed that increased optimism led to an average gain of 16.9% in savings. That means an optimistic household with a median savings of $8,000 had put away an extra $1,352. For households with a median savings of $62,410, optimism increased their savings by $10,547.<\/p>\n
The study follows other recent research that\u2019s shown that optimists are both more likely to experience better financial health than pessimists (2), and that optimists are more likely to use financial tools to help them save for retirement. (3)<\/p>\n
Dr. Joe Gladstone \u2014 assistant professor of behavioral sciences and marketing at the Rady School of Management, University of California San Diego, and co-author of the APA study \u2014 tells Moneywise that he was \u201ca bit surprised\u201d by the result but that \u201cit really does seem like the more optimistic you are, the better for your savings.\u201d<\/p>\n
It\u2019s important to note that \u201coptimism\u201d doesn\u2019t mean magical thinking \u2014 the idea, for example, that you should bet a mortgage payment at the track because you believe it\u2019ll all work out. Rather, optimists seem apt to save more because of their positive focus on long-term goals.<\/p>\n
\u201cBeing more optimistic allows you to visualize that positive future that you want to proactively save for,\u201d Gladstone says. \u201cAnd I think the people who have more negative disposition about the future would struggle to visualize that idealized future and then save sufficiently for it.\u201d<\/p>\n
Michael Finke \u2014 a certified financial planner and Frank M. Engle Chair of Economic Security at The American College of Financial Services \u2014 participated in separate research which also found that optimists save more money. He adds that \u201cthe triumph of the optimist\u201d lies in their resilience \u2014 that when faced with obstacles, \u201coptimists are more likely to believe that they can overcome them.\u201d<\/p>\n
Which may help explain why low-income earners benefit more from optimism despite, as the APA study notes, facing \u201cunique psychological, social, and institutional challenges to saving.\u201d<\/p>\n
Furthermore, Gladstone says low-income earners are generally forced to take voluntary actions to save \u2014 for example, depositing extra cash when they can afford to do so \u2014 as opposed to higher income households that often employ tools like automatic 401(k) withdrawals. Thus, an optimistic attitude likely benefits proactive voluntary choices over passive automation.<\/p>\n
To that end, financial therapist Lindsay Bryan-Podvin says optimism can also help savers \u201cbuild momentum\u201d and counter \u201cnegative stick-based financial literacy.\u201d<\/p>\n
Bryan-Podvin, the founder of Mind Money Balance \u2014 which focuses on the intersection of money and mental health \u2014 uses the example of someone putting $20 into their savings. She says that if \u201cthe first thing you see when you look at social media is somebody yelling at you because you only have that saved, you’re not going to feel good. But [optimism] says, \u2018Hey, that is a win and that is beneficial.\u2019\u201d<\/p>\n
Read more: 30% of US drivers switched car insurance in the last five years. Here’s how much they saved \u2014 and how you can cut your own bills ASAP<\/a><\/strong><\/p>\n Bryan-Podvin has seen the benefits of optimism with her own clients. But, she notes, some people also contend with generational influences that instill negative feelings around finances from childhood.<\/p>\n That could include those who grew up with parents constantly fighting about money, who \u201cmay have internalized [that] money is bad, money is wrong, it makes people fight.\u201d Such attitudes can carry over into adulthood and become a barrier to anything from negotiating a raise to talking finances with a partner.<\/p>\n When struggling with such generational roadblocks, Bryan-Podvin advises acknowledging them and being honest about how you\u2019re learning to change, \u201ccreating a bridge\u201d toward future goals.<\/p>\n And to help younger generations overcome negative thinking around money, she agrees with a suggestion in Gladstone\u2019s study regarding incorporating optimism-building techniques into financial education programs.<\/p>\n \u201cIf we want them to get on board with financial literacy and to build good, solid financial habits,\u201d Bryan-Podvin says, \u201cwe must include optimism and strength in any and all of our programming.\u201d<\/p>\n While financial optimism can feel like a tall task these days, the experts do have some tips for cultivating it as a means of bolstering your own long-term savings goals.<\/p>\n Finke suggests that \u201cthe best way to do it is to help people imagine what their life could be like in retirement.\u201d He says that too often we focus on \u201call the risks that we may have to face\u201d in our later years, but that helping people to \u201cimagine a better life\u201d is an \u201cessential\u201d savings motivator.<\/p>\n Bryan-Podvin recommends setting financial goals and then establishing personal support systems to help you move toward them \u2014 and help build that positive momentum. That could include anything from setting up regular auto deposits to journaling to asking friends for help with sticking to a savings target.<\/p>\n And, of course, be kind to yourself. That means, for example, that if you\u2019re proud that you made lunch from Monday to Thursday and want to treat yourself on Friday, go for it.<\/p>\n \u201cWhat that does,\u201d she adds, \u201cis it makes it more likely that you will stick to those four days.\u201d<\/p>\n Gladstone, meanwhile, points to the stock market and investment returns as a historical source of optimism. Despite the occasional ups and downs \u2014 there\u2019s that need for resilience again \u2014 he believes that younger people are under-invested while sitting on an opportunity for life-changing returns through compounding.<\/p>\n \u201cI still think that the lesson of history,\u201d he adds, \u201cis that the people who were optimists were the people who won out financially over the last 100 years-plus.\u201d<\/p>\n Join 200,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/strong><\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines<\/a>.<\/p>\n American Psychological Association (1<\/a>); Frost Bank (2<\/a>); Pension Bee (3<\/a>)<\/p>\n This article provides information only and should not be construed as advice. It is provided without warranty of any kind.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cDon\u2019t Worry, Be Happy\u201d \u2014 it\u2019s both an earworm and, as it turns out, sound financial advice. 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