Did you remember the last time you spoke with your wife or husband about your financial plan before leaving the country as an Overseas Filipino Worker (OFW)?
You set your financial goals that in three years time you’ll be able to have enough savings and reunite with loved ones. Sad to say, you still working in a foreign land after working so hard even after a decade because you still have no savings.
Believe it or not, most OFWs are struggling when it comes to saving money.
The 2011 study by Social Enterprise Development Partnership Inc. (SEDPI) reveals that 1 out of ten OFW is financially broke while 80 percent returns to the Philippines with no savings at all. Sad to say, this alarming condition causes financial distress in the long run specially when there are emergency cases.
There is no doubt a lot of people wanted to save money, yet they find find it difficult. If you are not use to a habit of saving, it can be a real struggle. It is easier said than done. When living paycheck to paycheck, it’s hard to set aside even a single penny. To many OFWs, financial success is just an illusion and far from reality.
What are the common behavioral challenges that prevent people from savings? Why it’s hard to make financial progress despite of setting your goals?
1. Delayed gratification
Generally, people are convince that savings is important. But while saving for tomorrow is essential, we cannot deny the fact that we’d rather do saving tomorrow than today.
Let’s be honest: spending money is more fun than saving it, at least in the short-term. We easily get discouraged when it comes to saving money because financial goals typically take a long time to achieve.
Remember the marshmallow experiment conducted at Stanford University led by psychologist Walter Mischel? A child was offered a choice between one small reward provided immediately or two small rewards if they waited for a short period, approximately 15 minutes. The tester left the room and then returned. The purpose is to understand delayed gratification.
In the same manner, delayed gratification has an important role in financial success.
In his TED Talk presentation entitled “Saving for tomorrow, tomorrow,” Shlomo Benartzi states that self control is not a problem in the future, it becomes a problem now. The is the issue about behavioral obstacle to saving. We think about saving, but today let’s spend and forget about saving. We tend to rationalize impulse buying to something that we can enjoy at the moment like purchasing stuff we want.
2. Loss aversion
Loss aversion refers to people’s tendency to prefer avoiding losses to acquiring equivalent gains: it’s better to not lose Php100 than to find Php100. The pain of losing is a common behavioral challenge when it comes to spending and saving.
Benartzi used an interesting illustration about loss aversion.
One group of monkeys gets an apple. Each one of them has an apple and they were happy. The second group of monkeys were given two apples, then one is taken away afterwards. Although both groups of monkey have an equal apple, the second group suffered from pain of losing.
We tend to think savings as a loss because we have to cut our spending. If an OFW think that saving for retirement is a loss, then they are not going to save for their retirement. If an OFW think that saving a small amount for an emergency fund is a loss, then they are not going to save money for emergency fund.
When you purchase something and fail to recognize the value of a product, you begin to think that it’s a loss rather than gain. For instance, when you buy the OMG book, you might think it’s just a waste of money.
In addition, loss aversion is one of the reasons why people are hesitant to invest their money because of the risks involved or the potential of losing money in the future.
We’d love to set goals. However, what we normally lack is making necessary actions. We understood the value of saving yet we take no action. It’s a little bit more painful to save now, its more easy and fun to spend now. This is the reason why we procrastinate. Oftentimes, we delayed saving because we thought we need to wait for a higher salary.
I believed there are only two rules to financial success: one is discipline and commitment, the second is commitment and discipline. Saving is as much about mindset as it is putting money away. Getting yourself into the right mental place can be even more important than getting yourself into any specific financial situation.
Don’t let these challenges to your financial progress stand in your way. Stop making excuses. One common reason why people don’t save is not having enough money left for savings. With this, its important to find extra source of income and begin to pay yourself first.
Remember, saving money is just a mindset and it’s doable.
For I know the plans I have for you,” declares the LORD, “plans to prosper you and not to harm you, plans to give you hope and a future. –Jeremiah 29:11, NIV
JUN AMPARO is the author of OMG! OFW’s Money is Gone: Practical Tips on How to Be Wise with Your Hard-earned Money which was featured at GMA News Online. Being an OFW for over a decade, he’s aware about the common financial challenges of many Overseas Filipino Workers.