The psychology of saving
By Amy Brown-Bowers • Bankrate.com

Canadians are saving less and less of their money, setting the personal savings rate -- the percentage of people's disposable income they don't spend -- at its lowest rate in decades.

After an all-time peak of 20 percent in the early 1980s and another peak in the early 1990s, the rate has crept steadily downward to 1.8 percent today.

So, what causes fluctuations in saving? Are some people hard-wired to save while others are predisposed to spend? Experts have some interesting ideas about whether the drive to save has more to do with our personalities or economic factors. The one thing they agree on is that everyone can learn to save.

External factors
Derek Holt, assistant chief economist with RBC Financial Group, in Toronto, believes external factors have a stronger influence on saving behaviour than internal ones. "I'd be inclined to say that the big picture economic factors are the dominant sources of the explanation," he says, citing interest rates, inflation and the rate of wealth growth.

"When you have high interest rates, that savings rate is going to be very, very high," he explains. "When you have low interest rates, people are going to shift their focus more towards the spending side."

A second major factor is inflation. "When inflation is high and volatile, you have to save a higher share of your income in order to offset the fact that inflation is eating away at the value of your investments," Holt says. For example, the high inflation rates of the 1970s and 1980s correlated with higher personal savings rates, while low inflation rates today may be part of the reason why Canadians are saving so little.

A third major predictor of saving is the rate at which your personal wealth -- including your home and your investments -- grows. "If (your person wealth) is growing pretty strongly, that, too, is going to influence the fraction of your pay cheque that you set aside," Holt says.

Internal factors
"Money behaviour is intimately connected to your personality and to your anxiety level," says Herb Goldberg, Ph.D., a psychologist and co-author of Money Madness: The Psychology of Saving, Spending, Loving and Hating Money. "Money behaviour is a direct expression of your personality. People repeat the same patterns over and over and over financially. People who are in debt are always in debt. People who are saving are always saving," he says.