Prudential Experiments Explain Our Money Habits

This post has been made possible by Prudential.

Below is a video player that can show five different videos, all provided by Prudential. They show some pretty neat concepts that relate to how we deal with our money and retirement from a mental perspective. Simply hit refresh to change the video. Below the video player is a description of the five videos if you cannot watch them for whatever reason. Enjoy!

In one video titled “An Experiment in Decision Paralysis” Prudential shows how having more choices available to you can lead to decision paralysis. They explain this through two scenarios, one involving choosing a cupcake flavor and another where they ask people to sort a bag of stuffed animals with no further guidance. The many solutions frustrate the people participating in the stuffed animal task and they give up.

Prudential goes on to explain that people who have more 401(k) investment options often have the same frustration in picking out investments for their retirement accounts. That’s why Prudential came up with Day One funds which are funds designed to help you prepare for day one of retirement.

In another video titled “Prudential – Overcoming Temptation” a recreation of the marshmallow experiment is shown. Kids are set in a room by themselves with a marshmallow and are told if they wait and don’t eat the first marshmallow until an instructor comes back they can have two marshmallows instead. Patience is hard, as evidenced by the experiment, and that is one reason many of us have not yet saved enough for retirement.

In a separate video titled “Episode 1: Your Future Self” Prudential explains that your brain sees your future self as a stranger, which makes it difficult to set money aside for retirement for your future self. They ran an experiment where people were guided through thinking about their future retired selves for one hour. After the hour, 75% of the group said they would save more for retirement. Take some time to think of your future retired self and maybe it will help you to increase your retirement contributions.

In another video titled “Episode 2: I’ll Do It Later” Prudential shows us a trick to help us get financial tasks done. An experiment is performed on two groups of people. Both are given a set of tedious tasks to perform. Once completed, half of the group is given a break while the other half is asked immediately if they want to perform the second set of tasks now or later. One third of the people in the second group took the second set of tasks home to complete later.

After the first group returned from their break, they were given the same option to complete the second group of tasks immediately or to take them home and do them later. Every person in the first group stayed and completed the tasks. You can use this trick to help you get your financial tasks done. Just simply schedule a break first so you have enough willpower to get through your financial tasks.

In the final video titled “Episode 3: The Pain of Saving” Prudential shows us that our brain registers the loss of money the same way it registers physical pain. Our brain also associates saving for retirement as losing money, triggering the same feelings of pain. However, the brain associates finding money with pleasure. If you’re having problems saving for retirement, think about all of the money you will find when you retire if you put away money now. The positive feeling of finding money in retirement later should help you overcome the pain of saving money today.

Build Your Emergency Fund: How to Start and Why a Money Market Account Makes Sense

Emergency FundRegardless of age, economic status or geography, there’s one thing every household should have: an emergency fund. Even the sunniest days can turn stormy at a moment’s notice. Being prepared with an emergency fund is the best way to avoid debt, stress and even bankruptcy.

Some experts recommend that you save a full six months’ worth of expenses for your emergency fund, but if you’re like most people, that sounds like an awful lofty goal. Instead, the most important thing to do is to just start saving. Even if current savings account rates are low, don’t wait. The sooner you get started saving, the more prepared you’ll be if an emergency strikes.

High-yield savings account options vary, but a money market account may be the best choice for your emergency fund.

Although you may already have a high-yield savings account, it’s a good idea to open a separate account to start your emergency fund. Just as its name says, an emergency fund is for emergencies only – not because the newest smart phone is calling your name or there’s a great sale at the local department store – and keeping that money separate from your everyday accounts is critical.

A money market account is a smart place to keep your emergency fund. The money market will be separate from your regular checking and savings accounts but can be quickly accessed in case of an emergency. You can meet your savings goals faster by automatically scheduling deposits. Having a money market savings account  means the rates you will earn interest at should be a competitive rate. Here are other top reasons to stash your emergency fund in a money market account:

  • Compared to stocks, bonds or CDs, money market accounts can be accessed relatively easily if you need to dip into them.
  • FDIC insurance means your money is protected.
  • Money market rates and balances can be quickly monitored online.

You may be wondering why a credit card, retirement account or home equity loan isn’t enough to cover your emergency fund needs. These don’t tend to be the best choices for a couple of reasons:

  • You’ll pay interest and penalties on a credit card if you’re unable to pay it off.
  • Withdrawing retirement funds early carries stiff penalties.
  • Falling home prices might mean that home equity loan isn’t worth as much as you once thought it was.

By having a true emergency fund in a high-yield savings account like a money market account, you’ll avoid debt and frustration.

Find the right money market account for your emergency fund

Don’t be misled into thinking you’re immune from catastrophes. A job loss, significant medical expense, or need for major home repairs can happen at any time. Even if you’re trying to reduce your spending, setting aside money for an emergency fund is something you simply can’t afford not to do. Start building your emergency savings account today before it’s too late.

Sponsored content was created and provided by Citizens Financial Group.

photo by: 401(K) 2013

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