Given a choice between saving or spending, most people choose spending. Why is this? Ultimately, I think it’s because our world rewards the wrong behaviour. Read on for a look at why people would rather spend than save and for eight tips to keep your spending in check.

This post was originally published in July 2020 and updated in May 2023.

We’re not good at saving

In Retirement savings advice to my younger self, I shared how I declined the opportunity to join my company retirement plan when I was in my 20s. Although not a wise decision, I’m not the only person to make this mistake.

Many Canadians, and others around the world, aren’t in the habit of saving regularly and have no emergency savings to fall back on. Add in record levels of debt, and it isn’t a pretty picture.

But yet we can’t resist the urge to spend.

Disclaimer: I’m not a financial advisor. Everyone’s situation is different. If you need help with your money, find a qualified financial advisor.

The state of our personal finances

According to the latest data from OECD, people living in the United Kingdom and the United States have some of the lowest savings rates in the world. Canadians do a little better, but we’re not great savers.

Economic challenges caused by the COVID-19 pandemic, combined with a period of record inflation, have given many people a harsh reminder of the importance of good money management.

Many of us are one paycheque away from disaster. A recent survey by the showed more than half of Americans don’t have enough savings to cover a $1,000 emergency expense. (Source: CNBC) And the 2019 Canadian Financial Capability Survey showed one-third of us don’t have an emergency fund to cover 3 months’ worth of expenses.

How did we get here? Manulife Bank of Canada’s 2019 Summer Debt Survey showed that almost 4 in 10 Canadians living in debt admit it’s because they lived beyond their means.

It’s so easy to get into trouble spending too much. Everywhere we turn, someone is trying to get us to spend more money. Between corporate marketing tactics, or just FOMO (fear of missing out), we often buy now and worry about how to pay for it later.

Saving or spending: A tale of two friends

Let’s look at an example of two fictitious people I’ll call Manny and Claire.

It’s Saturday. With nothing else to do, Manny and his friend Claire head to the mall.

Manny loads up on purchases at several of his favourite fast fashion stores. He uses his credit card to pay for them so he can earn travel rewards for the winter getaway he’s planning. He’s a little worried that he might be reaching the limit on his card but says to Claire “You only live once! I have a whole lifetime to pay off my balance.” As soon as he gets home, Manny immediately shows off his purchases on social media:

“Sweet deals today at the mall. I saved over $100 on these beauties.”

His post immediately gets positive reactions and comments from friends admiring his new purchases.

Claire, on the other hand, is focused on paying off her student debt and recently joined her new employer’s retirement plan. Although she’s tempted by the deals, she keeps her financial goals in mind and resists the urge to spend, despite Manny’s constant teasing. When Claire gets home, she makes a social media post of her own:

“Resisted the urge to buy things I don’t need at the mall today. With the money I didn’t spend, I’ll pay an extra $100 off my student loan and put $100 in my emergency savings account.”

Which is the more common scenario? We regularly see our friends posting about their latest purchases, amazing dinners out and vacations. When was the last time you saw someone bragging about how much they had saved or paid off on their debt? Go ahead and think about it. Take a look at your social media feeds. I’ll wait.

Spending is visible. Saving is invisible.

I bet you couldn’t come up with many, or maybe even any, examples of friends posting about their good financial habits.

Let’s face it. Paying off debt and building savings are pretty boring. Who wants to hear about that? This is the heart of the problem.

I recently read an article by Steve Vernon, an expert on behavioural finance and a research scholar at the Stanford Center on Longevity. This quote really sums up the issue well.

One challenge with saving is that it’s easy to observe friends and family spending their money, while saving is invisible – People don’t see their friends saving money.

Steve Vernon, Stanford Center on Longevity

Exactly! Spending is visible. It’s something we love broadcasting for the world to see. On the other hand, saving is invisible. We don’t post about saving. Heck, we don’t even talk about it.

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Financial institutions reward the wrong behaviour

Does your financial institution reward you for saving or spending?

It’s not uncommon for banks to offer incentives for customers who open a new bank account. A quick online search finds many major banks in the United States, and three of the big five national banks in Canada, currently offering cash to new customers who open chequing accounts.

But, don’t be fooled! This is a one-time reward to get their hands on your money. The conditions to get the cash reward usually involve getting your pay deposited into the account, or putting in new money. Even in this period of higher interest rates, most savings accounts pay next to no interest.

While the offer of free cash might be tempting, be sure to read the fine print and understand the fees before you make the switch.

Some financial institutions offer lower fees or higher interest rates based on regular savings or higher balances. Manulife Bank waives the monthly fee for its All-In Banking Package in any month where customers save $100 or more. And CIBC pays “smart interest” on some accounts in months where customers save $200 or more.

So if they’re not rewarding saving, what behaviour are the banks rewarding? You guessed it! Spending! Think about it. Pretty much every credit card offers some form of reward. It might be travel rewards, cash back, free groceries or other perks. The catch is, to reap the rewards you have to spend. And the more you spend, the greater the reward.

Wouldn’t it be cool if someone could come up with a credit-card type incentive for saving regularly?

Back to Manny and Claire

Manny is a great example of why this is a problem. Although he’s close to the limit on his credit card, he keeps spending so he can accumulate travel rewards for an upcoming trip. His comment “I have a whole lifetime to pay off my balance.” isn’t far from the truth.

The average credit card balance in Canada is just over $4,000 according to TransUnion. At an interest rate of 18%, if Manny makes only the minimum payment, it will take almost 4 years to pay off the balance and he will pay almost $1,500 in interest. And that’s assuming he stops using the card while he pays down the balance.

8 tips to keep your spending in check

So, what’s the secret to resisting temptation and avoiding getting into trouble with spending? Deciding whether to focus on saving or spending is really all about discipline. Here are a few tips to help you.

• Be thoughtful when shopping and apply mindful shopping practices. See Mindful shopping tips to save you money for some ideas on how this can help you.
• Track your spending. Knowing where your money is going is the critical first step in good money management.
• Make a budget and stick to it. Uh oh. The B word. No-one likes the word budget because they think it deprives them of the joys of life. But, did you know that a budget can help you be in more control of your money so you have money to do the things you want to do?
• Ditch the plastic! Get rid of your credit cards or leave them at home. Use cash or debit for your purchases.
• If you’re using a debit card, transfer extra money to a savings account to remove the ability to easily get your hands on the money.
• Spend wisely. Watch for items on sale. But remember, even the best deal is only a good deal if it’s something you need.
• Unsubscribe from store emails—all of them! Not only will this declutter your inbox, but it will reduce the temptation to spend.
• Kick FOMO to the curb and embrace JOMO—the joy of missing out. It will make a huge difference in your outlook on life.

Be sure to leave room in your budget for saving. It’s an important step toward financial independence.

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You may experience FOMO if your friends continue to post their new purchases. Remind yourself that you’re doing the right things for your future. Ultimately, you’ll be better off. Be like Claire! Make the right choice between saving or spending.

What are your strategies to choose between saving or spending? Tell us about them below.