Cognitive Daily

The psychology of money

How much money do you really need? Nearly everyone, regardless of their wealth, responds with an amount higher than what they currently have. Many financial planners suggest that Americans need to save at least $2 million by retirement in order to maintain their lifestyles. Yet what if you die before you spend all that money? What would the point of all that scrimping and saving have been?

A new article in the New York Times suggests that most people can maintain their existing lifestyle while saving just a fraction of that amount — $400,000 will do for a couple currently making $125,000 per year, and most of that can be saved during the 10 years before retirement. If you save too much when young, “You could end up squandering your youth rather than your money.”

One problem is, the more we think about money, the stingier we get. Shelley Batts reviews some of the recent research:

In one experiment, it was suggested that just thinking about money made people greedy. Subjects were given $2 worth of quarters and then were asked to solve a word puzzle. Some of the puzzles were word-neutral, and others had words denoting money and wealth like “high-paying salary.” After finishing the puzzle, they were told they could donate some of their quarters to a student emergency fund. The subjects that completed the neutral puzzle donated an average of $1.34 while those who completed the money-centric puzzle averages a donation of 77 cents.

This might also partially explain the well-known phenomenon that people with lower incomes tend to donate a higher proportion of their salary to charity. In a second experiment, people with more Monopoly money were less likely to help a person who dropped a box of pencils. The more we have, it seems, the more we want to hoard — even when we could be spending the money on ourselves.


  1. #1 Tyler
    January 30, 2007

    Very interesting piece. It is true that most of us listen to the financial planners that tell us we need millions in order to retire happily.
    Thanks for the article!

  2. #2 ERIC JUVE
    January 30, 2007

    There is a neat little java calculator for testing your retirement plans. I figure that 400K would give me a satisfactory lifestyle.

  3. #3 Dave Munger
    January 30, 2007

    I just checked out that calculator, and it looks to me like it is rather optimistic; also it doesn’t look like it takes taxes into account. This one looks like it offers a more realistic portrait of retirement income / savings.

  4. #4 Master Yoshi
    January 30, 2007

    I need enough money to buy whatever I want at the time I want it. That’s how I feel about money.

  5. #5 CM
    February 2, 2007

    One problem with the retirement calculator is that it asks you how much you anticipate to spend on health care per month after retirement. Obviously I picked a number higher than what I spend right now at age 30, but I really have no idea what health care expenses are like for a retiree.

  6. #6 best electronic cigarette
    August 4, 2009

    So true…the more you think about money, the more it consumes you, the more you think you need.

    Here’s another problem…do you think the couple that has scrimped and saved for 40 years is going to stop doing that and blow all the money that they’ve saved during their retirement? NOPE. I know too many retired couples and they still work…it’s not a 9-5 job they have, but a 2-3x/week gig that they enjoy…and most of them live off of that.

    I am just saying that people aren’t going to completely change their views on money just because they are retired.

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