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Financial Decoder: Episode 4


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People are hardwired to value earning money more than saving it. In this episode, Mark Riepe and Carrie Schwab-Pomerantz discuss both saving and spending strategies.  

A recent report shows that 26% of all workers have saved less than $1,000 for retirement and 64% have saved less than $100,000. In this episode, Mark Riepe talks with Carrie Schwab-Pomerantz about ways to overcome some common mental blocks to saving more—and to put savings on autopilot.

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Financial Decoder is an original podcast from Charles Schwab.

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Mark Riepe: Welcome to Financial Decoder, an original podcast from Charles Schwab. I’m your host, Mark Riepe.

This show is a companion to Schwab’s Choiceology podcast, which shares stories of irrational decision making from a variety of realms and looks at how the decisions we make impact our lives overall.

Here on Financial Decoder, we decode the cognitive and emotional biases that influence specific financial decisions that we all face and offer strategies to help us mitigate these biases and strive for better financial outcomes.

[typing sound]

That sound you hear is me typing the phrase “most popular New Year’s resolutions” into a search engine. This episode will be coming out right around the time when many of you will be thinking about resolutions for 2019.

I just hit enter and the first thing that comes up is a survey of the most common New Year’s resolutions for 2018. There is a three-way tie for first place, and those are way ahead of everything else on the list. And the winners are:

  • Eat healthier,
  • Get more exercise, and
  • Save more money.

And that last one, saving more money, that’s the topic of this episode.

By the way, eating healthier and saving money are curiously connected. An early 2018 study found that Americans spend roughly $5,400 per year on impulse purchases, and nearly three-quarters of them are for food.[1]

Based on my own behavior I suspect many of those impulse buys aren’t for the healthiest of foods, but who knows?

Anyway, back to saving, this is important to me because I’m a big believer in the power of investing to improve people’s lives.

But if you’re going to be an investor, you must first be a saver.

I’m troubled when I hear statistics like 26% of all workers have saved less than $1,000 for retirement and 64% have saved less than $100,000.[2]

Now of course, there are plenty of legitimate reasons for not saving.

It’s difficult if you have inconsistent employment, for example, or low earning power. And if you have expensive health challenges, it can be hard to save even if you have insurance.

This episode isn’t about people in those circumstances.

Our focus is on people who earn enough, but who either don’t know how much to save or are psychologically unable to save.

This is a surprisingly complex issue and our approach to saving is driven by both deep-seated behaviors and external forces that are hard to control.

From a behavior perspective, a recent study out of Cornell University found that people are hardwired to put more importance on earning money than on saving it.[3]

And there’s actually a thing called the Spendthrift-Tightwad Scale.[4] And a version of this scale was tested on a few hundred children from ages 5 to 10. The results showed that even within that age group, there were wide dispersions in how kids scored. 30% of the kids were at the tightwad end of the scale, and 7% were at the spendthrift end.

When it comes to external forces, other scholars have found that the past performance of the overall economy can drive behavior. Even after controlling for many of the variables that might influence saving behavior, it turns out that people who came of age during good times tend to be less frugal than those who grew up during lean economic years. And these effects have been shown to last for decades.[5]

In other words, if you lived through the Great Depression or if you have parents or grandparents for whom the Great Depression is a vivid memory, and to this day it influences their behavior—guess what, you’re not alone.

Many people at Schwab work to encourage saving, but perhaps none more so than Carrie Schwab-Pomerantz.

Carrie is the author of several books on investing and financial planning and is president of the Charles Schwab Foundation and a Certified Financial Planner®.

She’s devoted a considerable amount of energy to issues like financial literacy and making sure that everyone understands the importance of financial matters.

Carrie, it’s nice to have you here.

Carrie Schwab-Pomerantz: Thanks for having me, Mark.

Mark: So, Carrie, to my mind the savings challenge is really made up of two separate issues.

First, we have people who don’t think they need to save more, but they really should.

And it seems that their behavior is really being driven by a form of present bias. In other words, they’re so focused on the present that they simply don’t pay much attention to events in the far-off future. They just can’t see themselves in a future state.

And this is pretty common. So if we know that our brains are working against us when it comes to savings, how can people focus on the need to save now?

Carrie: I think it’s a matter of re-training our brains. And I think what’s getting in the way of savings is really probably fear, greed, and putting our heads in the sand. Because I can’t think of one person who doesn’t need to save for their future. I mean, just think about what your future as an older person will look like, and I think that will be enough to get you to start saving for that future. And that’s why I like to think that learning to save at a young age is so important because then it becomes a habit that you just do it. You don’t even think about it, it’s part of life—like paying taxes or brushing your teeth or whatever it may be. But for those who have maybe started a little later, I think it’s really important to put it on automatic pilot, in a sense. Take it out of your hands if you feel like emotionally you can’t deal with it. Most financial institutions or your employer will allow you to take money automatically out of your paycheck, put it into a savings or investing account, and then actually automatically invest it in some type of mutual fund or whatever, so that you are saving for the future. So I think the more you can take it out of your hands, especially if you do seem to get in your way, the better it is.

Mark: So, I think  what you’re saying is if you never see the money, then there’s no opportunity for the emotion to get in the way.

Carrie: Yeah, in a way you don’t want to totally forget about it, certainly. But you do want to forget about the pain of having to spend less. And I think once you put it on automatic, like a 401(k), for instance, then you’re left with the money you can work with. And you sort of forget that you’re saving and you work with what you have.

Mark: So, let’s talk about the people who know they should save more, and they’ve got the financial means to do so, but just can’t make it happen. It’s sort of a self-control issue. This is another case where, the way I think about it, people are fighting their own brains because when we spend money, our brains release dopamine—and, you know, it feels good. You’ve written about “mindful spending” as a way to rein in discretionary spending and focus more on saving.

What does mindful spending mean to you?

Carrie: I learned about—or I kind of discovered this whole idea of mindfulness when I was participating in this diet at my gym called the “30 clean.” And it was this whole concept of only being able to eat certain healthy foods. And if you know me, I’m one of the ones who likes to pick a lot of food, and I put a lot in my mouth without even thinking about it. So once I committed to this diet, I had to be mindful. It’s like “Oh, I was going for the cheese and crackers” but “Oh, wait a minute … I’m not supposed to do that, that’s not part of this diet.” And it made me think this so applied and was so parallel to our spending because so often we do—we just see something at the store, a lot of impulse buying. “Oh, I’ll just buy that; I’ll put that on my credit card.” And we’re not mindful. And that’s how I think spending gets away from us. You know, we don’t think about it, we don’t think about the long-term repercussions. So it’s all about being mindful.

Mark: So it’s more a question of just taking that pause, taking that moment to really think about those expenditures and what you’re getting from it.

Carrie: Exactly. Because, kind of like you said, the dopamine, we get really excited about spending. Kiddingly, my husband always says I get a shopper’s high. When I come home from the department store he says I’m as happy as ever can be. But I will tell you also there’s a different kind of high and that is seeing your money grow. And having that self-confidence and feeling of security when you start seeing money grow and you know having that pot of money to fall back on.

Mark: I think that’s exactly right. Now, one of the main reasons that people save is for retirement. And you’ve seen the statistics, more than half of workers are considered “at risk” of not being able to maintain their standard of living when it comes to retirement.[6]

What are some of the guidelines regarding the percentage of income people should be saving at different ages? [7]

Carrie: We always say the earlier you start to save, the easier it is. And that’s why it’s so much better to start as early as possible. Even with my kids, and I know with you too, Mark, with your kids, we start getting them to save and invest as soon as they get their first jobs. When they’re 16, we encourage them to open up a Roth IRA and save and invest in that for the rest of their lives. But a good rule of thumb for people is that if you start in your 20s, you should save 10 to 15% of your income toward retirement. However, if you wait until your 30s, you’re going to have to save about 20% of your income. And if you wait until your 40s, you’re going to have to save 30%. So you can see the longer you wait to save the harder it is. And I know saving 30% is a big chunk of your money so it’s just so much easier to start earlier.

Mark: So that 10%, that seems doable, but as you mentioned, that number gets really high very quickly. So why is it? Why that big jump from 10% in your 20s to 20 then 30?

Carrie: It’s all the power of compound growth. And what I mean by compound growth is that not only are you putting money aside, so let’s just say $100 a month. You’re saving that hundred dollars but then that hundred dollars is earning interest and then as time goes by not only is your savings earning interest but your interest is earning interest. So it creates a snowball effect where your money really grows a lot faster without really thinking about it.

Mark: If you don’t do anything on the savings front until you reach your 30s, you’ve got to save at a much higher rate to make up for the fact that you missed out on all the potential growth during your 20s.

Carrie: Absolutely, all the compound growth and the sooner you start … there’s an example and it’s not a great example, but if you have one penny and you save another penny the next day and you double each penny[8], I think after 31 days it’s …

Mark: It’s millions of dollars.

Carrie: Millions. Like 20 million dollars. The point is, it’s just the magic of math, really. And it works out so that you earn a lot more by starting early.

Mark: So we open up the episode by mentioning that saving more is one of the top goals people choose when it comes to New Year’s resolutions. You’ve written[9] that if you document your goals, the odds of achieving them go way up.

So tell us more about that and specifically what should people actually be writing down when they put together a savings plan?

Carrie: So goals are great because they make your hopes and dreams more concrete, and it’s much more motivating. So I think it’s really good to, there are different ways to look at it but there are short-term goals, medium goals and long-term goals. So a short-term goal might be to buy a car, or a vacation, something that’s 3 to 5 years. And then a mid-term might be something for 5 to 7 years, maybe it’s buying a house. And then a longer-term goal would be something like retirement which could be 40, 50 years away or even a child’s college education, so 20 years away. Thinking about what’s important to you, putting it on paper and having intention in your life—it’s part of having a plan. And this whole notion of writing down those goals and then writing down how much money do I have now and how much money do I need to get there—and what am I going to do to get there? Just that intentional act of putting that on paper, you’re much more likely to succeed in achieving it. And there are studies, plenty of studies, in particular a friend of mine who’s an academic who’s been studying the benefits of financial literacy on an individual’s life. She has proven that people who plan—again the simple act of writing down your goals and how you’re going to get there save on average 300% more than those who do not. [10]      

Mark: In episode three we talked about when it comes to thinking about the performance of your investments that it’s really important to actually do the calculation and do it correctly rather than trying to guess, because people get it wrong so often. I think what you were just talking about is that specificity is really important. Don’t just write down “I’m saving for a house.” It’s what type of house, how much money I am going to be setting aside each paycheck. If you don’t have that specificity, it’s not going to be as successful. Did I get that right?

Carrie: Oh yeah, and I did not mention that. Absolutely, you definitely want to put price tags on your goals, and you also want to be realistic. You hear about people who want to retire in 10 years or 15 years. You have to really think about it. I think if you’re realistic, you’re much more likely to achieve it. Otherwise, you’re probably going to get discouraged and kind of walk away from all your plans.

Mark: So nudges are popular these days. We did an entire episode about nudges in Choiceology. By nudges I mean small changes in how decisions are presented that can lead you to make the right decision. So what’s a good nudge when it comes to savings?

Carrie: It’s a little bit harder, I think, with savings because it’s one of those things you kind of just have to do it. And that gets back to one of the biggest nudges, and it’s sort of a backhanded one, is putting it on automatic. Again, taking it out of your hands and letting your employer and your financial institution handle the savings and investing. I think another nudge is having those goals. They can be very aspirational, thinking, “Wow, I’m going to have my own home in this community.” That’s pretty exciting and motivational and if you start thinking about buying those Jimmy Choo shoes or that expensive car as opposed to getting a used car and realize you’re not going to get to that beautiful home you’d hoped for, you might reconsider what you’re going to spend on. So that’s another one. The other is, actually a lot of women do this, they think about their older age and they get a little nervous about being a bag lady. So that kind of puts fire in their belly in terms of saving for their future and making sure that they’re well protected and secure in their older age.

Mark: As we head into the new year, people are beginning to learn about year-end bonuses, they’re learning about whether or not they’re going to get a raise for next year. This is also a time when a lot of people switch jobs and perhaps people are moving to a higher-paying job. So do you have any tips for how to incorporate savings as people’s financial situations are starting to change a little bit, potentially?

Carrie: So I think first and foremost is, if you’ve made a commitment to save, in particular for retirement, and let’s say you did start in your 20s and you’re saving 10—you’ve committed to 10% . You definitely want to continue the 10% on any raise and in any bonus. Because remember, as you grow older and as you get more accomplished in your career, your expenses get bigger, and you have bigger needs in your life. So you’re definitely going to want a bigger retirement than, say, what you were making in your 20s. So continue to save at a heavy rate, but at the same time, as you’re getting a nice bonus or a nice increase, definitely reward yourself and have some fun. I mean, if you don’t do things like that for yourself, then you’re going to get discouraged and you’re going to walk away from it. Definitely take an opportunity to celebrate but also continue that great savings you’ve always been doing.

Mark: So there are so many factors, both internal and external, that are kind of working against saving. We live in a very consumer-oriented, consumption-oriented society, and there’s plenty of people talking about how to spend; the voices for saving aren’t nearly as loud. You’re a big advocate of financial literacy, so let’s do a lightning round where I’m going to identify an age group of kids and then you give me the one best tip for how parents can get kids of that age to save. Are the rules clear?

Carrie: I think the rules are clear but I may not give you the exact answer you’re looking for. So let’s give it a try.

Mark: OK, elementary school kids.

Carrie: Highly recommend giving them an allowance. And then making them spend the money on the things they want. This is the first time that they will actually put value on the money and reconsider spending their own money if you make them do it themselves.

Mark: So it’s sort of forcing them to be a decision-maker when the stakes are relatively small.

Carrie: Exactly.

Mark: All right, good advice. Middle school age kids.

Carrie: Some people think that I’m crazy, but I think once your child’s 11, 12 years old, teach them about investing. Take them to the local financial institution, get them comfortable working with a financial institution, have that financial consultant talk about the benefits and importance of investing in a diversified portfolio for the long term.

Mark:   OK, finally, what do you have for high school age kids?

Carrie: Continue the conversation around investing. Have them open up their Roth IRA when they get their first W-2, their summer job, and invest for their retirement. Also, start introducing them to credit cards, and paying off a credit card monthly, and paying it in full.

Mark: Great, yeah, that’s good advice. So, when kids are older it’s possible to get a little bit more mathematical with them. You’ve written about the opportunity costs of savings. We were just talking about that earlier, how you miss out on the power of compounding. Knowing how hard it is for adults to wrap their minds around it, how did you explain compound interest to your kids?

Carrie: Oh , oh boy, that’s … you’re asking me to do a math lesson right now. I think just the simple math. Give an example: If you have a thousand dollars saved for one year and you’re getting ten percent, your money will grow to a thousand and a hundred dollars, right? But then what happens is next year, your one thousand and hundred dollars will start earning interest, along with the additional thousand dollars that you save. Again, the interest is earning interest, that hundred dollars. So I think the best thing to do is take your child, go on a savings calculator, put in some numbers, a savings rate and an interest rate, and see the power of how fast it grows.

Mark: Right. And let them play around with it a little bit. That’s a lot of good information, Carrie. Thanks for coming by.

Carrie: Thanks, Mark! It’s been fun.

Mark: For most of this episode the message has been to save more.

And there are good reasons for that. We believe most people should save more, and surveys indicate that many people agree.

But like so much of life, there needs to be balance. Don’t go to the other extreme because that isn’t great either.

There’s a heartbreaking story in the Choiceology episode entitled “The Temptation of Now” about a mother who was a pathological saver and made life extremely difficult for her son.

So don’t forget to enjoy life’s little luxuries and be, as Carrie mentioned earlier, a mindful spender. I love that phrase.

This is especially important if you’re retired. I regularly hear from Schwab representatives who work with retired clients. Many of these clients could comfortably spend more, but they refuse because they’re locked in an overly frugal mindset.

The problem with being too frugal is that you’ve saved your whole life in order to enjoy retirement, and now that it’s here, you’re locked in a behavioral pattern of under-consuming.

So don’t go overboard—feel free to live a little and enjoy the fruits of a lifetime of prudence and hard work.

If you’d like to learn more from Carrie Schwab-Pomerantz, visit to read her articles.

And remember: It helps to document your goals. You can talk to Schwab about creating—and sticking to—a financial plan. Call us at 800-355-2162 or visit a branch near you.

We normally post a new episode every two weeks, but we’re taking a short break after this episode for the holidays, and we’ll be back in the near year.

If you’ve enjoyed this episode, consider leaving us a review on Apple Podcasts or your listening app. Thanks for listening.

For important disclosures and a transcript, see the show notes at


[1] Sarah O’Brien, “Consumers Cough Up $5,400 a Year on Impulse Purchases,”, February 23, 2018.

[2] 2018 RCS Fact Sheet #3: Preparing for Retirement in America, Employee Benefit Research Institute.


[4] Craig E. Smith, Margaret Echelbarger, Susan A. Gelman, and Scott I. Rick, “Spendthrifts and Tightwads in Childhood: Feelings About Spending Predict Children’s Financial Decision Making,” Journal of Behavioral Decision Making, July 2018.

[5] Ulrike Malmendier and Leslie Sheng Shen, “Scarred Consumption,” NBER working paper no. 24696, June, 2018.

[7] Carrie Schwab-Pomerantz, “Saving for Retirement: How Much is Enough?

[9] Carrie Schwab-Pomerantz, “Have You Set Your 2018 Financial Goals?

[10] Original data was based on 1,269 observations and came from a special retirement planning module for the 2004 Health and Retirement Study targeting Americans over the age of 50. Source: Lusardi, Annamaria, and Mitchell, Olivia S., “Financial Literacy and Planning: Implications for Retirement Wellbeing,” May 2011, page 29. 


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