What Is The Push Theory? A Nobel Prize That Helps You Save Money

One of the individual purposes, when the year begins, is savings and investment. With a theory carried out by an economics professor in the United States, he could convert the ability to save into a habit and thus develop various projects proposed in the short, medium, or long term.

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LatinAmerican Post | David García Pedraza

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Leer en español: ¿Qué es la teoría del empujón? Un Premio Nobel que te ayuda a ahorrar

It is known, through personal or close experiences, the power that the mind has to idealize, build and materialize projects, and all that this entails, such as having willpower, going the "extra mile" and sacrificing free time for a benefit in the medium or long term.

Saving has everything to do with these premises. The moment an individual decides to start allocating money to savings, from the outset, they know that, even though the money devalues over time, they have the freedom to allocate that small amount for a good in the future. However, due to some emergency or unforeseen expense, there are several times when you have to allocate that savings to cover unbudgeted expenses, and frustration takes over the situation.

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Why do we save? And when we do it, do we know how to do it, invest it or spend it? These questions are a constant topic of discussion in behavioral economics, a branch of this science that is responsible for understanding how people make economic decisions, both day-to-day such as what or where to go for dinner, as well as a higher degree of difficulty such as the acquisition of debt for a lifetime material asset, such as a house.

The Economy Studied In Psychology

Richard L. Thaler, a professor at the University of Chicago, in the United States, is one of the familiar faces of behavioral economics, whose Nobel Prize in Economics, won in 2017, has a lot to do with this current and with his 'Theory of push' which earned him the award five years ago.

Thaler explains that people do not usually have an established and orderly saving habit, and that, when they do, they only think about short-term benefits or what generates immediate satisfaction. For this reason, Thaler considers that to truly save, stimuli are needed, above all of a psychological nature, so that individuals understand the importance of saving and finally materialize, in the long term, a project which they had wanted to develop (such as the acquisition of a car, an apartment or completing a postgraduate course).

The Ideal Stimulus

When you want to save, you must have a good income, economic stability, and a clear project to allocate that savings, however, what happens when you have all this, but even so the savings are an illusion? Thaler recommends little by little idealizing the result that will be achieved with the savings through the mind, here you must have great willpower and not give up, or make sure to be as financially polite as possible so as not to spend the savings on a dinner or a trip on a whim.

However, the individual needs that 'push' that society can give them to save. For example, some people who know that they do not feel mentally capable of saving go to a bank and sign a permit in which they agree to allocate 20% of their salary to an automatically programmed savings account, here entity banking gave the user that pushes they need to save.

Behavioral economics continues to investigate to learn more about why individuals use money as they do, and with the results obtained, perhaps this 'push' can stop being a theory and become a financial savings strategy. It will also serve to make people little by little more aware of the importance of saving and encourage its relevance in private decisions, such as investing in a pension to enjoy a good old age.

An X-ray Of Savings In Latin America

Latin America is a difficult region for a common individual, with an income below the world average, to make savings.

Due to the average quality of life and the non-habit of saving, Latin American societies are the ones with the lowest level of savings. Only 51% of the population has a bank account, according to data from Global Findex. Furthermore, while 71% of the population of OECD countries save, only 41% of Latinos do.

However, financial education also has a lot to do with it. In 'first world' countries, this type of education comes from the home and is strengthened in schools, while in Latin America, the schools where the subject is discussed are scarcely accessible to families with high incomes. In this matter, the gap between rich and poor also wreaks havoc.

Here the 'push theory' should go further, since, at least in Latin America, it would not be feasible to encourage the population to save, but rather there is a minimal capacity to allocate part of their income to this activity. Another factor for behavioral economics to investigate, investigate and advise.