Jump-start your retirement saving with the fresh start effect

End of the year brings in addition to New Year’s celebrations also New Year’s resolutions which many people make for themselves and usually include exercising more regularly, eating more veggies, quitting smoking or cutting out some other unhealthy habits. Some might also resolve to start saving for retirement or some other financial goal. So what’s the behavioral science behind New Year’s resolutions and can they really help us change our course for the better? 

New Year’s resolutions go way back. Romans started each year by making promises to their god Janus, who was the god of beginnings and endings and you can guess twice after who the month of January is named after, so we are talking here about a really long established tradition.

Researchers like Eva Krockow, from University of Leicester, explains in her latest article the year’s end may give us a so-called “fresh start” effect and this new beginning can boost our morale and provide the right setting for behaviour change. Temporal landmarks, such as the beginning of a new year, beginning of a new month or a religious holiday, may serve as a time marker and signal to us a new chapter in our lives that helps to reinforce our commitment to change and form new habits. Leaving away the past people are less likely to feel tarnished by previous failures and this increases the chances new behavioral changes will stick [1]. 

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Dai, Milkman & Riis explain in their research people are more likely to tackle their goals immediately after salient temporal landmarks, like the outset of a new week, month, year, semester or a birthday and they also provide in their field studies evidence of a fresh start effect mentioned before. They propose these landmarks demarcate the passage of time, creating many new mental accounting periods each year (what is mental accounting you can read here), which leave past imperfections to a previous period. This as a result increases aspirational behavior of people. Temporal landmarks have another function besides psychologically separating us from our past failures, as they may also motivate us to pursue aspirations by altering the manner in which we process information and form preferences, more specifically, they create discontinuities in our perceptions of time and that helps us to take a more broader view of our decisions [2] or to put it shortly, to look more at the big picture. 

Don`t forget the why

So when thinking about New Year’s resolutions and what changes you will make in 2021, don’t focus only on what you will change but also why you want to make those changes, as Sara Dolan, an associate professor of psychology and neuroscience at Baylor University explains nicely in a recent New York Times article “You’re not going to sustain a behavior change unless you have internal motivation.” Meaning external motivators, like losing weight to conform to society’s standards, work far less effectively than internal motivators, such as losing weight to actually feel better physically and mentally. In order to succeed with making behavior changes she also advises to pick small goals that are actually achievable and measurable, as each small success can help us to achieve a bigger goal later down the line [3]. 

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Fresh start and retirement saving

So let’s not get carried away and make all kinds of over-optimistic vague goals and let’s start small. When it comes to retirement saving and your future financial welfare the best thing you can do is to muscle the positive fresh start energy of January and make the first big step and start saving with a concrete amount. To make sure your momentum will not run out, start a monthly saving plan individually or if you have a chance to join a corporate saving plan with your employer even better, as they can arrange for you a monthly payroll deduction which will help you stay on the right path. This way you will only have to make the first step and the rest will run automatically until your retirement and if the plan offers automatic escalation of contributions later down the line even better as that means contributions will increase automatically at a set time intervals without requiring any waste of cognitive energy from your part. But at the beginning I wouldn’t worry too much on how much you will save, as long as you start saving, this is the most crucial and also at the same time the hardest step. The same applies for the ones who are already saving – raise your monthly contributions by $100 and the effects later down the line on your savings will really make all of a difference if you will be able to afford that cruise to the Bahamas or not.

As we learned from the article it is important to also think about why you want to start saving for your retirement and find the right internal motivation to follow through. What nice things would you like to do in retirement with your savings, like take a trip to Tuscany or spend quality time with your grandchildren. How will that make you feel? Many studies point out that the mere fact of writing down your goals and why you want to achieve them will help you reach them more easily, as Katy Milkman from Wharton School of the University of Pennsylvania explains this helps to make your goals more memorable and the more deeply you engage with them, the more likely you are to follow through and actually get there [3]. 

So let’s leave 2020 behind and start saving for retirement in 2021. With Janus on your side, what could go wrong?


[1] Krockow, Eva. Why Now Is the Time for a Fresh Start. Psychology Today, 2020. Retrieved from: Why Now Is the Time for a Fresh Start | Psychology Today 

[2] Dai, Hengchen & Milkman, Katherine & Riis, Jason. The Fresh Start Effect: Temporal Landmarks Motivate Aspirational Behavior. Management Science. 60. 2563-2582, 2014. Retrieved from: https://www.researchgate.net/publication/275620856_The_Fresh_Start_Effect_Temporal_Landmarks_Motivate_Aspirational_Behavior

[3] Christina, Caron. This Year, Try Downsizing Your Resolutions, The New York Times, 2020. Retrieved from: Downsize New Years Resolutions for 2021 – The New York Times (nytimes.com) 

Published by Ziga Vizintin

Nudging people to save for retirement one nudge at a time.

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