Recently I completed a book by author Charles Duhigg titled “The Power of Habit” ( Duhigg,2012). It was an interesting read about the structure and building blocks of habits and how our brain responds, both positively and negatively.  One interesting discussion was how consumer goods companies have used the science of habits to sell their products. The author tells the story of the rise of toothpaste after World War I, and how marketers and scientists created the daily brushing ritual which most of us now mindlessly follow every day. This habit they created has resulted in billions of dollars of sales, where there was once none. Today, over 70% of all Americans use their product daily and often several times each day! How did they do it? They mastered the human psychology of habits and leveraged the concept of cravings and rewards.

Toothpaste was originally marketed based on beauty and vanity. Basically, our desire to project a ‘white smile’ was the sole reason to use the product. The benefit was beauty and appearance related. While initial sales of toothpaste were modest, it wasn’t until Pepsodent hit the market in the 1930’s, that toothpaste sales started to skyrocket. What was different about Pepsodent toothpaste? Scientists had added compounds that slightly irritated the mouth to provide a ‘fresh, tingly sensation’. These added ingredients create the reward most of us now ‘crave’ as part of brushing. Our mouth simply does not feel clean without that sensation. What’s more, those ingredients do nothing to increase the effectiveness of toothpaste! They are simply present to convince ourselves that the product is working and to provide us with a small reward for brushing. They used habits and cravings to revolutionize their industry.

Duhigg continues to say that there are many other daily activities we perform, or should perform, that do not become habits. Applying sunscreen, for example, is one of them. The research around the daily application of sunscreen is almost undeniable in preventing skin cancer. However while most us could not imagine a day without brushing our teeth, fewer than 10% of the population use sunscreen daily, despite the benefits. Why? Duhigg explains that the lack of reward, and more specifically the subsequent lack of craving for that reward, is what prevents its daily use from becoming a habit.

Researchers are attempting to produce a sunscreen that will provide a similar experience to brushing our teeth. A tingle or sensation on our skin to tell our brains that the sunscreen is applied, and working! They believe that sensation will help create the rewards necessary to make applying sunscreen the same daily ritual as brushing our teeth. They are attempting to ‘create’ another habit in order to sell more sunscreen.

One can wonder if saving for our retirement is the financial equivalent of sunscreen. Very few of us have mastered saving as a habit, with the same commitment we have, to say, brushing our teeth. Most Americans are woefully under saving, and generally ill prepared for retirement. Why? Are they


uninformed or unaware of the need to save in order to ensure an adequate retirement? Do they not understand that retirement will arrive at some point for all of us? Or, as Duhigg explains about sunscreen, are we disconnected from the rewards? There is no ‘craving’ for the result. The alternative to saving, spending today provides such a better feeling or reward. The instant gratification or the pleasure associated with “the spend” is so good, why choose the alternative? The vacation, the fancy dinner or expensive sports car provides a much greater sensation than placing those dollars in our 401(k) or IRA. Thus, spending becomes the habit instead of savings. It is simply more enjoyable. It feels better.

Furthermore, once we actually do begin to desire the rewards of a comfortable retirement, assumedly later in life when closer to the goal, we have lost the crucial early years needed to build a successful nest egg!

So what to do, given the fact that saving does not reward us today? What steps can one take to save successfully despite that fact that it is not habitual? First, you must absolutely have a goal in mind with

regards to your retirement. Maybe it’s an age, an activity, or a dollar amount you would like to achieve. Be sure to write that goal down or document it somewhere. Revisit it often. Next, you need to track your progress to your goal. Check in with your results periodically and note where you stand. Are you ahead of goal? Behind ? This step will help to keep you connected to your goal and remind you of why you are savings. Next, pay yourself first. Use the automatic features of payroll deduction or bank authorizations to fund your retirement accounts. Don’t rely on saving what you don’t spend. Only spend what you don’t save. Lastly, find a way to reward yourself. Maybe it’s after accumulating a certain dollar amount in your IRA, or for a full year of saving consistently into your 401(k). Focus on that short term reward when working toward your long term goal. Turn savings into a habit that provides a small, timely, reward.

Despite the fact that sacrificing for today can be difficult, there are steps one can take to create a similar outcome to the more enjoyable uses of our funds. And consider your savings more like toothpaste, and less like sunscreen.













Registered Representative, Securities offered through Cambridge Investment Research, Inc., a broker/dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a registered Investment Advisor. Reiner Financial Group, LLC
and Cambridge are not affiliated.