"The battle between the Current and Future Self continues.... Read more by Ross to find out why it's important to plan for the future."

At its core, proper personal financial management boils down to a few key disciplines – spending what you can afford and setting as much aside as you can for the future. But if it’s so easy, why do most people find it so difficult? Ross Curran looks at the reasons we struggle with future planning and some of the ways we can help ourselves.

If you can, take yourself back tens of thousands of years through time and try to imagine what life would have been like. At this point in human history we were a nomadic race, hunter-gatherers, with lives that were a lot more straightforward than today.

The odds of living to old age were significantly lower, but day-to-day needs were extremely simple. We moved in small groups, never staying in one location for too long, and constantly looking out for our next meal. Our movements were dictated by the seasons and we migrated around the globe, like the rest of the animal kingdom.

In his book, Homo Sapiens – A Brief History of Humankind, author Yuval Noah Harari examines our preconceptions of human evolution and posits some interesting, perhaps slightly controversial, theories.

His first is that the development of the agricultural age – when people first stayed in one location and cultivated crops and livestock – was not quite the benefit to humanity that we believe. On the one hand it certainly contributed to the explosion in population growth, as people could have far more children if they weren’t constantly on the move. However the other impact of this development was far less benign.

For the first time, humanity developed a dependence on their immediate environment. Crop yield determined if we ate or starved, larger families meant women were forced into a far more subservient role, and the interaction of people within communities, and between communities now became associated with the notion of ‘ownership’. My land belonged to me and no one else, which meant I would defend it to the death if necessary.

This concept of ownership led to protectionism, which led to soldiers, armies, chiefs and kingdoms. All the while, for the vast majority of the human race, life became a constant struggle to provide enough from meagre resources to continue living.

Interesting, right? But what has this got to do with financial planning?

Well, this change in society forced people to think beyond the next day. In all but very rare cases, farming means following a cycle of planting – managing – harvesting – storing – planting etc. Here it is no longer prudent, or even possible, to consume what you need immediately and then go and find more. Instead we have to ration what we have to ensure it lasts until we get more in the future.

This was a major change in human behaviour, totally at odds with what had preceded for tens of thousands of years. And the human brain couldn’t just switch on to this new reality. Having been hard-wired to seek out what we need when we need it, the biggest challenge for humanity over the next couple of thousand years has been to keep our prehistoric brains in check.

Quiz

Here’s a short quiz. Can you identify what theme the following stories share?

  • Adam & Eve
  • Icarus and Dedalus
  • The Goose that laid the Golden Egg
  • The Dog and its Reflection (Aesops Fable)

Perhaps you think that they are mostly children’s stories, which they certainly are (though would have been written for adults too in times gone by). Perhaps it’s that each story is trying to teach a lesson. Right again. So what’s the lesson?

Each story, and thousands exist around the globe with the same message, introduces us to a character who comes to find themselves in a position of relative plenty. However rather than being satisfied with their situation, their greed leads them to try and take more than they should. Of course this backfires in the end and they ultimately find themselves poor, hungry, banished or dead.

In the context of an agricultural society, we can see the rationale for creating stories like this. It is hugely important that everyone knows the result of taking more than they need. Moral tales, communicated through story form or through religious instruction, tell us that a life lived prudently within our means and the means of the community, is one that is rewarded (in this life or the next), while taking the path of self-indulgence will always have negative consequences.

Psychologists call this the Battle Between our Current and Future Self. The part of our brain that evolved for hunter gatherer living, and which remains fairly dominant even today, is the Current Self. Impatient, greedy and demanding, it is constantly seeking gratification and reward. Even when not in our best interest, this part of our brain is usually calling the shots.

Against that we have the Future Self. In real terms the future self is coming from a terrible position of weakness. There is no one to represent it, defend it or fight the impulses of the current self. While we all have a Future Self, and multiple versions for different periods in the years ahead, they are not ‘us’. They are a conceptual idea of what we, hopefully, would like our current self to be at some point in the future. And because the future is so vague and unconstructed, acting in your Future Self’s best interests can seem impossible.

As such, societies through history recognised that conditioning the population through story based indoctrination and, ultimately, physical threats was all that that was needed to keep everything in check. That is, until a new ‘religion’ arrived on the scene.

Capitalism has been around since the dawn of the first human settlements, when trading excess produce for other items or materials was necessary. For millennia, the notion of spending money (a key tool for capitalism and worthy of its own story) for something you might want instead of need was restricted to just the tiniest percentage of the population.

Waste, in a strictly moral sense, was available only to those at the very top. However with the arrival of the industrial revolution, humanity changed direction slightly. We had a situation where efficiency of labour increased and capital could result in profit for a much wider section of society. Suddenly those recesses of our hunter-gatherer brains demanding instant gratification could be fired back up again!

In the last 100 years or so, society has taken us to an interesting new place. For a large percentage of the planet’s population there is now scope for us to allocate only a portion of our ‘income’ to keeping us alive – i.e. food and shelter. In the developing world it might be 80-99% of allocation, whereas in the west it might be as low as 30-50%. This means we get to decide what we want to spend the rest on and reignites the battle between Current and Future Self.

Think about it logically. If I spend 50% of my income on absolute necessities and then 10-20% on other needs, there is absolutely no reason why I shouldn’t put every remaining percent towards the protection of my Future Self. I know that events occur all the time that can damage my ability to earn and that at some point, hopefully, I’ll reach a point where I’ll no longer be earning an income. So why don’t we all do this?

I have an iphone 6 and a 5 year old LCD TV. Both work fine and fulfil all my media consumption needs. So why is it that I want an iphone 7 and a new OLED TV? It’s because my current self is weak, vulnerable and extremely suggestible. Even though I don’t need a new phone or TV, I want them. I am bombarded all the time by messages telling me how much better I’ll feel when I get my shiny new toys.

I’ve been barraged like this since childhood – my current self constantly being manipulated and threatened until I give in and seek that gratification. Selling, marketing & advertising, are really psychological tricks used to bring our Current Self into the decision making process. And our Current Self usually makes bad long term choices!

Commitment Devices

If we know that our current self is poor at making decisions that are in our own long-term self-interest, how do we fight those impulses? Cultures have grappled with this issue for hundreds, if not thousands, of years by now and a number of methods have been developed, both at a societal and personal level to help.

At the core of each is what psychologists call a commitment device, something that ‘forces’ us to take an action that we would otherwise avoid.

As I previously discussed, throughout history and for much of the world still, religious and cultural traditions continue to place major emphasis on the benefits of prudence and sensibility, and the control mechanisms they have in place go some ways to keeping impulse in check for a population. The children’s stories referenced above are a good example. Of course the levels of disposable income are usually relatively low so temptations don’t exist in a meaningful way for a vast majority.

In wealthier, secular, parts of the world where traditional methods no longer hold the populace in check, managing the Current Self can actually be more difficult. I’ve highlighted how the inherent nature of capitalism is to separate the individual from their most important resource – in this case money – and replace it with ‘things’ that we often (usually) don’t really need. If you have this force putting pressure on you constantly, what hope do you have?

Social Welfare has been one of human society’s greatest altruistic inventions and, in theory, a method by which communities protect their collective future selves. In a culture where the old authorities have reduced influence, government can step into that role. By taking some of our ‘excess’ resources away, they can plan for rainy day events like sickness or unemployment and for that time in our lives when we are unable to work due to old age.

Because the decision to take our resources is out of our control, it is an incredibly effective commitment device. It is also, in many respects, at the core of all political discourse. We have political parties that believe the individual should be responsible for their own financial well-being (often considered the ‘right’) and others who believe that the state should take a far more proactive role in managing the distribution of a nations resources (the ‘left’). It is surely amazing to think that much of the politics we engage with today is a direct link back to that most basic of survival instincts.

In an Irish context, we are seeing a slow but seemingly inexorable shift away from state involvement in many of our financial needs, most especially those related to our Future Self. For decades now, the safety net of the State Pension has been in place to protect, at least to some degree, our retired population from poverty. While €230 per week may not seem like much, for a huge majority of retirees it constitutes the largest single source of income (and the only source for a large portion).

However, for a multitude of reasons we can, without accusation of hyperbole, sound the warning alarm for the future of this protective mechanism. The provision of a state pension requires a sustainable tax base, and an increasing pension population requires a commensurate growth in taxpayers. What is clear is that our increasing lifespan and the changing shape, and size, of Irish families means this is absolutely not feasible into the medium to long term.

Aligned with that is the erosion of another commitment device – the company pension. As Defined Benefit schemes wind up in ever increasing numbers, the prognosis is clear. In less than a decade almost no working individual will have access to a guaranteed retirement income from their employment. Instead most will need to rely on the value of an investment fund, prudently managed, to draw down on when they stop working. What’s worse though is the changing face of employment. With contracting becoming the de facto standard in many industries, from zero-hour to three-year rolling arrangements, companies are putting far less into pensions than they used to.

What Now?

This means that the responsibility for protecting our future selves lies firmly at our own doorstep, however much we may wish it wasn’t so. It is simply not possible for people to put their head in the sand and hope that someone else – government, employer – will step in on our behalf. We must start educating everyone on the need to save and, as best we can, incentivise long term planning in the face of ever more aggressive capitalism.

Society has undergone vast changes since we stopped wandering the world as hunter-gatherers. It’s worth remembering that the era of state ‘care’ – looking after our future selves on our behalf – is at most 150 years old. It was a grand experiment for sure, and those that lived through it benefited in many ways.

Those of us the west currently enjoy, despite what you may read or see, the most peaceful and prosperous existence in human history and it is true that the rest of the world is actually catching up pretty quickly. However one of the unintended consequences of prosperity is smaller families and longer lifespan. Therefore, unless we radically shift our political outlook to the left and accept far higher taxation in return for the type of protections previous generations received, we have a duty of care to ourselves.

I’ve already outlined the reasons why taking care of your future self is hard. It works against almost every instinct we have. But we have, as a species, survived and thrived, often despite ourselves. If we have any intention of ensuring that neither sickness or old age should impact our lives in a meaningful material manner, then the onus is on us to start planning today.

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