Behavioral economists and psychologists have long noted that people are not wired well when it comes to making short-term sacrifices to achieve long-term goals. In an innovative research project published in the Journal of Marketing Research, consumers boosted their planned retirement investments after they viewed older versions of themselves using facial-aging software. The idea of investing in their own futures made more sense when they could relate to their future selves as real people. A bit chilling, perhaps, but effective.

Emotionally, people have trouble doing the kind of planning needed to accurately determine their current and future savings needs, and then to actually make and execute a savings plan. "The brain is mainly set up for wandering around on the savannah picking up berries," British psychology professor Neil Stewart noted in a 2011 Barclays Wealth report on how people control their financial behavior. "We're stuck with that sort of Stone Age brain, trying to do modern financial decision-making with it. Basically, your brain is doomed."

To counter these trends, experts say, we need to be more financially literate and learn how to translate our financial knowledge into long-term savings and investment plans.

Professors Annamaria Lusardi of the George Washington School of Business and Olivia S. Mitchell of the University of Pennsylvania's Wharton School have done extensive studies on consumer financial literacy and its relationship to successful planning and financial outcomes. "There is a strong correlation between financial literacy and retirement planning," Lusardi says. And there is a link between planning and success: People who plan well accumulate more wealth. "Morevoer, the amount of planning also matters," the two wrote in a 2011 research paper. "Those who are able to develop a plan and those who can stick to the plan accumulate much more wealth than simple planners."

Motivating people to learn financial and planning skills is the key, both researches say. "You need to find ways to motivate people, and interesting ways to convey it," says Lusardi.

Americans have been poor savers for decades. During much of the 1970s, people socked away more than 10 percent of their disposable income, according to U.S. Department of Commerce data. This personal savings rate went on a steady and steep decline and even flirted with zero before the bubble burst in 2005 and 2006. It jumped to 5 and even 6 percent during the subsequent "new frugality" period of the recovery. But it's fallen since then, hitting 3.5 percent in late 2011. That's a fraction of the minimum savings rate that the Center for Retirement Research at Boston College advises for retirement planning.

Even if you're far from retirement, figuring out ways to save more money now is essential, given the power of compound interest, rising healthcare costs, and expected longevity. Research from the Center and the nonprofit Employee Benefits Research Institute regularly shows that people greatly underestimate their lifetime financial needs, particularly in retirement. The Center says a 25-year old needs to sock away only 7 percent of his or her income each year to retire comfortably at age 70. However, a person who does not begin saving until age of 45 would need to save 18 percent of his or her income every year to achieve the same goal.

Successful savings strategies should include formal reminders, according to a 2010 Center research paper. "Periodic reminder messages induce you to attend to the benefits and task of putting money aside," the paper said, "and thereby help you increase incremental savings."

Automatic and repetitive savings and investment programs are proving to be successful ways to boost savings. The introduction of so-called "opt out" 401(k) plans in the past few years has begun to boost participation in the plans and the amounts of money employees are setting aside. Under these programs, employees are automatically enrolled in a payroll-deduction investment program unless they opt out of the plan. Earlier, 401(k)s were "opt in" programs that required eligible employees to sign up.

In the real world, many people struggle to find room to save after paying for more pressing expenses such as food and housing. Those struggling with a heavy debt load can take advantage of free or low-cost nonprofit counseling services. The National Foundation for Credit Counseling can help you find a counselor. Fee-only financial advisers also offer professional support, often on an hourly basis. The National Association of Personal Financial Advisors makes it easy to search for advisers by ZIP code.

For those who prefer to develop a plan on their own, these elements are essential:

Know what you spend. Set aside time at the beginning of each month to track what you actually spent the previous month.

Create a budget and stick to it. Use your monthly spending analysis to help build your budget and then see if you're staying within your goals. A growing number of online budgeting sites such as Mint.com can help.

Automate financial transactions.This includes setting aside savings and also paying recurring bills.

Get organized. Gather and centralize your key financial records, including online accounts and passwords.

Check credit card and banking fees. Look carefully for new fees and interest charges. Banking fees have become much more transparent since new federal laws went into effect.

Review insurance terms and rates. Is the deductible on your auto's collision coverage still the right call as your vehicle's value declines? Is your home insurance providing you more protection than you need, given declining property values? Do you still need as much life insurance?

Refinance your mortgage. With home-loan rates still at 50-year lows, take a careful look at refinancing.

Pay annually if you can. Insurance and other annual services may let you pay your bill in smaller monthly installment payments. While these monthly payments are not considered a loan, that is exactly what they are. You'll wind up paying the equivalent of interest in the form of higher payments.

Downsize to one car.If your household has two cars, try leaving one in the garage for a month. See how it affects your life. With a modest amount of planning, many households may be able to make do with a single car.

Regardless of which specific strategies make sense for you, there's one to-do that applies almost universally: Make the time to review your financial affairs and come up with a plan to boost savings. One day, you'll be glad you did, and richer for the effort.

 

 

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