“Don’t Worry, Be Happy” — it’s both an earworm and, as it turns out, sound financial advice.
That’s because data shows that people who are optimistic save more money for the future than those who aren’t — especially when it comes to low-income earners.
Research published earlier this year by the American Psychological Association (APA) studied the optimism levels and savings habits of 140,000 participants from the U.S., Israel and across Europe. It found that “optimism significantly predicts greater savings over time” and that “among lower income individuals, optimism is more strongly associated with saving.” (1)
In hard numbers, the study showed that increased optimism led to an average gain of 16.9% in savings. That means an optimistic household with a median savings of $8,000 had put away an extra $1,352. For households with a median savings of $62,410, optimism increased their savings by $10,547.
The study follows other recent research that’s shown that optimists are both more likely to experience better financial health than pessimists (2), and that optimists are more likely to use financial tools to help them save for retirement. (3)
Dr. Joe Gladstone — assistant professor of behavioral sciences and marketing at the Rady School of Management, University of California San Diego, and co-author of the APA study — tells Moneywise that he was “a bit surprised” by the result but that “it really does seem like the more optimistic you are, the better for your savings.”
Why optimism works
It’s important to note that “optimism” doesn’t mean magical thinking — the idea, for example, that you should bet a mortgage payment at the track because you believe it’ll all work out. Rather, optimists seem apt to save more because of their positive focus on long-term goals.
“Being more optimistic allows you to visualize that positive future that you want to proactively save for,” Gladstone says. “And I think the people who have more negative disposition about the future would struggle to visualize that idealized future and then save sufficiently for it.”
Michael Finke — a certified financial planner and Frank M. Engle Chair of Economic Security at The American College of Financial Services — participated in separate research which also found that optimists save more money. He adds that “the triumph of the optimist” lies in their resilience — that when faced with obstacles, “optimists are more likely to believe that they can overcome them.”
Which may help explain why low-income earners benefit more from optimism despite, as the APA study notes, facing “unique psychological, social, and institutional challenges to saving.”
Furthermore, Gladstone says low-income earners are generally forced to take voluntary actions to save — for example, depositing extra cash when they can afford to do so — as opposed to higher income households that often employ tools like automatic 401(k) withdrawals. Thus, an optimistic attitude likely benefits proactive voluntary choices over passive automation.
To that end, financial therapist Lindsay Bryan-Podvin says optimism can also help savers “build momentum” and counter “negative stick-based financial literacy.”
Bryan-Podvin, the founder of Mind Money Balance — which focuses on the intersection of money and mental health — uses the example of someone putting $20 into their savings. She says that if “the first thing you see when you look at social media is somebody yelling at you because you only have that saved, you’re not going to feel good. But [optimism] says, ‘Hey, that is a win and that is beneficial.’”
Generational barriers to optimism
Bryan-Podvin has seen the benefits of optimism with her own clients. But, she notes, some people also contend with generational influences that instill negative feelings around finances from childhood.
That could include those who grew up with parents constantly fighting about money, who “may have internalized [that] money is bad, money is wrong, it makes people fight.” Such attitudes can carry over into adulthood and become a barrier to anything from negotiating a raise to talking finances with a partner.
When struggling with such generational roadblocks, Bryan-Podvin advises acknowledging them and being honest about how you’re learning to change, “creating a bridge” toward future goals.
And to help younger generations overcome negative thinking around money, she agrees with a suggestion in Gladstone’s study regarding incorporating optimism-building techniques into financial education programs.
“If we want them to get on board with financial literacy and to build good, solid financial habits,” Bryan-Podvin says, “we must include optimism and strength in any and all of our programming.”
How to boost your own financial optimism
While financial optimism can feel like a tall task these days, the experts do have some tips for cultivating it as a means of bolstering your own long-term savings goals.
Finke suggests that “the best way to do it is to help people imagine what their life could be like in retirement.” He says that too often we focus on “all the risks that we may have to face” in our later years, but that helping people to “imagine a better life” is an “essential” savings motivator.
Bryan-Podvin recommends setting financial goals and then establishing personal support systems to help you move toward them — and help build that positive momentum. That could include anything from setting up regular auto deposits to journaling to asking friends for help with sticking to a savings target.
And, of course, be kind to yourself. That means, for example, that if you’re proud that you made lunch from Monday to Thursday and want to treat yourself on Friday, go for it.
“What that does,” she adds, “is it makes it more likely that you will stick to those four days.”
Gladstone, meanwhile, points to the stock market and investment returns as a historical source of optimism. Despite the occasional ups and downs — there’s that need for resilience again — he believes that younger people are under-invested while sitting on an opportunity for life-changing returns through compounding.
“I still think that the lesson of history,” he adds, “is that the people who were optimists were the people who won out financially over the last 100 years-plus.”
