5 ways to trick yourself into saving

When it comes to saving money, it can sometimes feel like you have to give something up in order to make any progress—but it’s hard to maintain motivation if you feel like you’re constantly depriving yourself. Luckily, “there are ways to save without feeling the pinch,” says Michelle Dagnino, Executive Director of the Jane/Finch Community & Family Centre, a United Way–supported agency. She works with families, many of whom are living on a low income, to help them find ways to save while still paying the bills. Here are her tips for making saving easier on all of us.

1. Thwart add-on costs

Dagnino often sees issues arise when people purchase big-ticket items that have recurring costs they didn’t factor into their budgets. “They think of a major purchase as a one-time cost, when, in fact, there may be additional associated fees attached,” she says. Think kids’ activities that require uniforms or equipment, or a new vehicle that needs insurance and gas. She suggests doing some research and making a budget that includes all of those costs. Ultimately, you may have to decide on a vehicle that uses less gas, or choose sports that have fewer add-on expenses, but then you won’t have to dip into savings when bills come due.

2. Start saving automatically

You can’t spend money you don’t have, right? So pretend that you don’t have it. Set up a savings program with your bank that automatically diverts a percentage of your paycheque to a savings account you can’t access with your debit card. Chances are you won’t even miss that spending money, and you’ll see your savings grow.

3. Pay down your debt

The old adage is true: it is important to pay yourself first. That is, unless you have significant debt. Accumulating interest can hobble your ability to save long-term, so it’s worth diverting funds to debt repayment. First you need a plan, which should include switching to low-interest credit cards. Once your debt is gone, set up an automatic withdrawal that deposits the money that would have gone toward it into your savings.

4. Learn what you don’t know

Think you’re financially savvy? You may be missing crucial information that could help you get ahead. And no, you don’t have to spend money to get educated. “Communities offer free resources that provide excellent opportunities for saving,” says Dagnino. “The library is a great place to start for courses on financial literacy.”

5. Shop smarter

Bad shopping habits can zap your savings. “Establishing healthy patterns around purchasing can help you spend less,” says Dagnino. Planning ahead is key. If you’re running out to the corner store because you forgot to pick up dish soap on your weekly grocery shop, you’re paying higher prices for convenience. Shopping around for the best prices will also help you save. For example, farmers’ markets or urban farms sell fresh, healthy, organic food without the high price sometimes found in big-name grocery stores. Case in point: Black Creek Community Farm at Jane and Steeles sells produce without the markup.

To learn more about some of the difficult financial decisions faced by people living on a low income, try our online poverty simulator and challenge your perspectives on poverty. You can also brush up on your financial skills or find additional support in your neighbourhood by calling 211 or visiting the Jane/Finch Community & Family Centre, an agency committed to advancing financial literacy through support services, such as income tax clinics and workshops.

What do these things have in common?

1. A time-pressed CEO, faced with a week of triple-booked meetings and urgent decisions to be made.
2. A person on a diet, counting calories.
3. A low-wage North American city-dweller, counting pennies.

According to Dr. Eldar Shafir—a professor of Psychology and Public Affairs at Princeton University, and the co-author of Scarcity: Why Having So Little Means So Much—the answer is simple: They’re all facing some form of scarcity.

“When you’re facing a lack—of time, money, food—you tend to focus obsessively on the object of the scarcity,” says Shafir. “That leaves less mental room for other aspects of your life.”

This drain on what Shafir calls “mental bandwidth” explains why poverty can be so taxing, emotionally and intellectually. But poverty, says Shafir, is even more stressful than many other forms of scarcity, because the stakes are so much higher. “If a middle-class professional makes a bad call at work, they might fail at a particular task or project,” he says. “But if a person living at the precipice of poverty makes a bad decision, the result could be far worse—eviction, for example.”

With over half a million people in Toronto living in poverty, that’s a lot of lost bandwidth. And with the release of Ontario’s new Poverty Reduction Strategy, United Way Toronto and the Wellesley Institute co-hosted a presentation and discussion with Shafir last month to dive into the psychological issues related to poverty.

“There’s lot of data indicating people living in poverty don’t do well with decision-making. So the question is: Are they in poverty because of bad decisions, or are the bad decisions somehow the result of poverty?”

Shafir cites studies indicating that people living on significantly low incomes often perform poorly on intelligence tests, when simultaneously contemplating difficult financial scenarios—but those intelligence deficits disappear when the money concerns are removed. Similar results have been observed in people living with any form of scarcity, including time scarcity, which impairs decision-making in a way that also has a measurable effect on intelligence tests.

Comparing poverty to other, relatable forms of scarcity (like the aforementioned time scarcity of the busy executive) help to create what Shafir calls an “empathy bridge.”

“The behaviour of people living in poverty looks a lot less strange when you consider that any form of scarcity lends itself to making snap decision, often bad decisions,” he says. “Like when we’re juggling a lot of demands on our time.”

No surprise, then that he supports public policy that can help with that everyday juggling, and “simply, provide more bandwidth.”

“I believe in government intervention,” he says, “so in many ways Canadians have it better than Americans….The five year plan Ontario has is a wonderful way to conduct policy and think about these things on a regular basis. Just keeping this in the public discussion—that’s one of the most important things we can do.”

Interested in knowing more? Check out this 2011 TedX presentation by Dr. Shafir:


When good advice goes bad

This week, Imagine a City is joined by guest blogger John Stapleton, founder of Open Policy Ontario and a fellow with the Metcalf Foundation. He has some much-needed financial advice for low-income earners, just in time for Financial Literacy Month. Here, he provides a rundown of what low-income earners really need to know, and how the financial-services industry can serve them better. (For more, see his comprehensive report, “Planning for Retirement on a Low Income.”)

People living on low incomes might wonder how the financial advice they receive differs from the advice given to middle- and high-income earners. The reality? It doesn’t. That’s a problem, because it can be toxic to those facing poverty. They live in a parallel universe where most, if not all, of the rules are different.

When assisting low-income people, for instance, many advisors will tell them to max out their RRSPs, forget about Tax Free Savings Accounts (TFSAs), and wait until 65 or later to sign up for Canada Pension. They’ll also be advised to look closely at their taxes to capitalize on tax credits.

This is the same advice given (rightfully) to middle- and high-income earners, but for people making ends meet on lower incomes, it’s exactly wrong.

Low-income retirees are likely to receive something called the Guaranteed Income Supplement (GIS), paid in addition to Old Age Security. So they should actually do the following: cash in their RRSPs before age 65, load up their TFSAs (if they have any savings), and apply for early CPP, around age 60. They should also forget about the non-refundable tax credits they will likely not need.

So, why is the right advice typically not given to low-income earners?

Two reasons: The first is that the GIS is an entitlement—the dreaded “E” word—and not a tax credit. Financial advisors are loathe to tell anyone to organize their affairs to maximize entitlements because entitlements are often seen as a drain on the public purse in a way that tax credits are not. The second is that the financial-advisory community doesn’t generally know much about the GIS.

Perhaps there’s a third reason. I’ve heard it before: there simply isn’t much money to be made advising low-income earners. And that’s true if information isn’t tailored to their specific needs, but if these individuals got the right advice up front, they would have money. A lot more money. Maybe financial institutions would even be justified in charging them for it. It’s just good, useful advice, after all.

Making the most of what we make

DSC_6265Maria is a 24-year-old single mother to three young children, living near Jane and Finch in Toronto. While taking care of herself and her family as she looked for employment, she found that her limited finances didn’t stretch very far. At least, they didn’t until recently.

At a local community agency, Maria enrolled in a financial literacy workshop that is tailored to people living on a low income. She learned the basics of how to track her finances, how credit ratings are determined and other important financial information that gave her the foundation to realize a new financial future for herself and her children (you can read more of Maria’s story here ).

The barriers faced by Maria are like those of countless Torontonians who are not only living on a low income, but also facing other mounting challenges, including an unemployment rate of 8.6% in the Greater Toronto Area (above the national average of 6.9%) and record levels of household debt.

November is Financial Literacy Month, a great time to reflect on why financial literacy matters, why it’s a skill we have to learn and, in terms of the information offered, why one size doesn’t fit all. Over the next few weeks, we’ll be posting some information about United Way’s work in financial literacy , profiling some of our incredible partners and other organizations who are doing impressive work in the community on this very issue. You’ll also meet a few people whose lives were changed when they connected with programs geared to their particular situation. Check it out this month by liking us at Facebook.com/UnitedWayToronto and following us on Twitter.

By subscribing to the blog, you can join us November 18, when we tackle the gap between the financial literacy advice that is generally offered and the needs of lower-income earners—and why that gap is a serious concern.