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Want to save more? Simplify

By Claes Bell ·
Friday, May 3, 2013
Posted: 5 pm ET

Separating money into several accounts is a popular way to manage money and boost savings. But new research from the University of Kansas suggests that consolidating your bank accounts down to one may help you save more.

In four separate studies with 566 total participants, subjects were given the opportunity to earn and spend varying amounts of money. One group was given three bank accounts to keep their money in, while the other was given just one bank account.

Researchers then compared which group saved the most as a percentage of their "income." While the number of accounts didn't make a significant difference in the behavior of the most frugal participants in the study, less frugal participants saved nearly 11 percentage points more of what they earned when they had their funds in a single account versus multiple accounts.

"For years, the conventional wisdom has been that spreading your money across various accounts encourages you to save," Promothesh Chatterjee, an assistant professor at the University of Kansas School of Business, said in a press release. "Nowadays, the average American has multiple liquid accounts, typically a combination of checking (accounts) and savings accounts. But our research finds this is the wrong strategy to encourage saving. We find that individuals are more likely to save if they have only one primary account, rather than many accounts."

Chatterjee attributes the results to a combination of two psychological phenomena, "motivated reasoning" and "fuzzy-trace theory." Basically, people enjoy spending money, so they're likely to try and interpret the figures in their budget in a way that justifies the spending they want to do. Having one simple, less "fuzzy" number makes that act of distorting reality to suit your wants more difficult than it would be with multiple account balances and numbers that you can "fudge." Consequently, for consumers fighting the temptation to blow money they could save instead, a single number reflecting their total wealth could be a powerful weapon.

Still, if consolidating accounts won't work for you, you may be able to get similar benefits by using money management software that consolidates the balances in your various accounts into one number, Chatterjee said.

What do you think? Would consolidating your balances into one total make it easier to understand the consequences of your saving and spending actions?

Follow me on Twitter: @ClaesBell.

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