What if you could make tiny changes to your student life that would make a big difference to your cash flow?
Nudge techniques have been used by behavioural economists to improve health and safety, get people to pay their taxes on time, and even to make men pee straight. They could also help you manage your finances at university – and the best part? It takes very little effort to implement them.
Here’s the secret of how it works: We humans are generally pretty terrible at long-term thinking. It’s why we eat fast food, drink and smoke when we know it’s bad for us – we prioritise short-term satisfaction. So behavioural scientists experiment with commitment saving, which is all about giving yourself the right incentive to think about the future when making decisions in the here and now.
Reward yourself
“Human beings enjoy having their good behaviour rewarded,” says Jeremy Beament from Nudge Global, an organisation which uses behavioural techniques to help people manage their finances. “So if you want to have a course of good behaviour – like not buying three Starbucks coffees a week and actually putting that money aside – you’re much more likely to continue that good behaviour if you’re rewarded at the end.”
Aanchal Vij, an English PhD student at the University of Sussex, used this thinking to boost her social life. “I would describe my master’s year as entirely incentive-based,” she says, adding that as an international student from India, one of the reasons she chose Sussex was because of the music scene in Brighton. “My big aim was to watch as many music concerts as I could. Even though I would go through really long phases of living frugally, the reward would be so good when I stayed disciplined and could afford to see bands.”
Change your routine
How you reward yourself depends on what you best respond to. But you could tie it into another behavioural technique based around “consumption smoothing”. “In general, it’s easier to manage small, regular, predictable things than one-time expenses,” says Dr Jeffrey Mosenkis, a behavioural scientist at Innovations for Poverty Action, an organisation which uses nudges to help people in developing countries.
For example, if you know you want to go on holiday at the end of term, it’s much easier to save a set amount each week than have a vague idea that you should generally spend less. “You know you’ll need, say, £200 in four months’ time,” says Mosenkis. “You need to convert that one-time expense into small short-term payments.” While you may not have £200 lying around, you may have £10 every week – the money you saved on coffee – for the next few months.
Separate budgets
That’s where the next nudge comes in: mental accounting. Studies suggest that separating out budgets in your mind can help you save more. “Setting up a device that helps you with mental accounting by visually or mentally separating out your money is helpful,” says Mosenkis.
Ben McClellan, a primary PGCE student at UCL, goes one step further when he’s saving for a trip or a music festival. “I put money in a separate account every month,” he says. “You want to be able to check your current account balance and know that that’s the amount of money you have to spend. If it’s including your savings money, it’s giving you the wrong message.”
Watch your balance
Even the simple act of labelling a pool of money – say, “holiday fund” – also motivates you to put money aside, according to studies. You can help yourself to do this by getting into the habit of checking your banking app regularly (however painful that might be). “I probably check my app once or twice a week, just so I know roughly where I’m at,” says Sophie Jermy, a sports science master’s student at the University of Chester.
“The main thing is always being aware of what you’re spending. You hear from a lot of students: ‘I checked my bank account and suddenly I’m in my overdraft and didn’t even realise.’” According to studies, a major reason people fall into their overdrafts is simply because they’re unaware of how much they have left in their accounts.
Obviously, you’ll need to remember to keep doing this – which is why reminders are helpful. On the day you get your loan or paycheque in, Beament advises, set an alarm telling yourself to pay into your holiday fund, or whatever account your bills are paid with.
Nudge techniques first of all take a bit of introspection. What bad habits could you change?
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