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Dubai: Some people love to see the digits in their savings account go up each month. For others, salary week means the chance to splurge. So, what is it that determines ones’ inclination to save or spend? 

Can you blame it all on your genes?

Evangeline Elsa, Community Solutions Editor

According to some studies, when it comes to spending and saving, we are genetically wired to be what we are, there isn’t a lot anyone can do about it.

When people were actively deciding to purchase something they wanted, parts of the brain responsible for happy emotions were activated

A 2011 study showed how “money genes” have much more influence on people’s wealth and saving habits than their upbringing. Two scholars Stephan Siegel at the University of Washington and Henrik Cronqvist at Claremont McKenna College looked at the money habits of 30,000 identical and fraternal twins from Sweden.

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Parenting effects on savings behaviour are strong for those in their twenties but decay to zero by middle age

The economists found that about one-third of adults’ tendency to save money is locked up in their DNA, while parenting and social background make much less of a difference. The researchers conceded that even though parenting and life experiences have an impact on the saving and spending habits of people, by the age of 40, learned money behaviours recede and habits are almost fully governed by a person’s genetic predispositions.

As reported in Time magazine, the authors wrote: “Parenting effects on savings behaviour are strong for those in their twenties but decay to zero by middle age. Parents do not have a lifelong non-genetic impact on their children’s savings.”

According to a study conducted by Hersh Shefrin, a Canadian economist, only 25 per cent are born with a gene that tells us to stop buying what we should not be buying.

Genes only bring the tendency, not the behaviour

Psychologist Anne MostafaDr Anne Mustafa, a psychologist based in Bahrain disagrees with the above thesis. She told Gulf News

According to her, genes just create the tendency to be a spender or a saver. She added: “The environment and society exert the primary influence on whether the behaviour will appear or not. Biochemical balances of neurotransmitters like dopamine and serotonin are biologically or genetically set. Then, other influences make them more or less intense.”

She refers to a study called Genetic Determinants of Financial Risk Taking published by Camelia M. Kuhnen, a doctoral candidate at the Graduate School of Business and Psychology and Joan Y. Chiao of Northwestern University in the US. The 2009 research shows how individuals vary in their willingness to take financial risks.

Their study shows how variants of two genes that regulate dopamine and serotonin neurotransmission, which control risk and reward processes in the brain, are significant determinants of risk-taking in financial decisions. The same genes have been previously linked to emotional behaviour, anxiety, and addiction.

How the brain reacts

In a 2005 research paper titled, The Neural Basis of Financial Risk-Taking, Kuhnen and her co-author Brian Knutson explained an experiment studying functional magnetic resonance imaging (fMRI) images of people’s brains as they handled money-related tasks.

When people were actively deciding to purchase something they wanted, parts of the brain responsible for happy emotions were activated. One of his observations was the release of dopamine – a neurotransmitter responsible for feelings of pleasure – in the nucleus accumbens, a portion of the brain involved in reward and addiction. Knutson detected the release of dopamine when people were anticipating purchasing something they wanted.

Conversely, when faced with excessive prices the brain visibly reacted as well. The researchers saw reactions in the insula region of the brain, the area that is also activated when someone feels or anticipated the feeling of pain.

Pain of paying

Psychologists have been studying the ‘pain of paying’ for over a decade. It’s based on the principle that it hurts more to make some purchases than others. The more a purchase hurts, the less people are willing to make it.

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It's okay to spend a little, but not too much. Image Credit: Giphy

George Loewenstein, a professor of economics and psychology at Carnegie Mellon University, in a study called “Tightwads and Spendthrifts” published in 2008, found that people feel different degrees of “pain of paying”. The degree determined if they are a “tightwad” or a “spendthrift”.

Can a spender become a saver?

Loewenstein highlights: “It is unlikely that people will change from being a big spender to being a big saver or vice versa... perhaps it is genetic.”

According to Stephan Siegel: “... between one-third and 50 per cent of our behaviour is determined by our genes. As such, it seems that it would be counterintuitive to try to change a spending or saving behaviour since it’s determined to such a great extent by genetics.”

However, Dr Anne Mustafa says, the behaviour can be changed. She said: “We need to look at the factors we can control — a person’s thinking and behaviour. When a behaviour, which is within the ‘normal’ range, is needed to be changed, we can look at changing thinking and perception, which reinforce it.”

Psychologist Urmimala SinhaUrmimala Sinha, a Dubai-based clinical psychologist agrees. She told Gulf News,  “However, it’s not a personality change but the person might cope better with the delayed gratifications. Which means, the decision to delay your immediate needs and impulses.”

And if the behaviour is out of control, Dr Mustafa added: “We are reaching a point where we can correct biochemical imbalances with medications. That is how psychiatry corrects Obsessive Compulsive Disorder (OCD), depression, and other pathology.”

Spending too much? The economy might be key

Huda Tabrez, Special to Gulf News

A love for shopping often comes with a free voucher for guilt. People often blame a bad relationship or peer pressure for excessive spending habits. But is it truly hard to save because of factors beyond one’s control? Could the way an economy is structured play a role in how much the average person is able to spend or save?

Gulf News took the question to economists to find out how different aspects of an economy’s design might be making it easier for people to spend.

Anita YadavAccording to Anita Yadav, senior director at Emirates NBD, it is important to analyse the conditions that enable spending. Speaking to Gulf News, she said, “First of all, you should have a job and money to spend. So, an economy where employment levels and job security are high is one in which people would feel more comfortable spending.

Budgeting and saving money step by step
Image Credit: Javed Nawab/Gulf News

Secondly, the media around you and the promotion of consumerism also has an impact, but most economies in the world have that, unless you consider rural areas. Finally, availability and easy access to consumer products can also influence how much someone spends."

A diversified economy that encourages businesses to enter the market can also positively impact you as a consumer, according to Dr Philip Molyneux.

“If you have more choice, you would have more competition, lower prices, better quality and more innovation. That should feed into improved overall wellbeing for consumers,” Dr Molyneux told Gulf News.

Economies that provide credit more easily can also benefit people, considering the average life cycle.

“When people are younger – in their 20s or 30s – they might be starting a family, buying a car or an apartment as well as all the appliances and furnishing that come with it. That is when they tend to be ‘net borrowers’.

"This can go on, often up till the mid-40s. But once they are past that stage, they start thinking about retirement and savings as they have already acquired most things necessary for a comfortable life.

"That is when they tend to be ‘net savers’. When credit is easily available in society, what it does is help people even out their expenses through this life cycle,” he said.

However, he warned that credit without the necessary checks and balances in place could also lead to problems, like the global recession in 2007.

“Credit has to be available to meet demands, but not be excessive. There has to be a balance and that is a challenge,” he said.

Confessions of a reforming spendthrift

To say I had a spending problem would be a slight understatement. I once bought a watch that was almost my month’s salary. For a friend’s wedding, I picked up designer jewellery as a gift. Team mates shopping for shoes online? Count me in! I’ll buy three.

Despite being on a young journalist’s salary, I was very squarely in the ‘impulsive shoppers’ category. It was possible because I was living in Dubai, a shopper’s delight, with my parents, which meant I did not have to pay the bills. However, even back then, I had one saving grace – I never spent money I didn’t own, so never got into the loan trap.

Today, the situation is quite different. Life seems to have finally caught up with me, marriage, baby and all. Reigning in that instinct is tough, but I do have some help.

What has helped someone like me is how glamourised the ‘minimalist’ lifestyle has become, with its ‘less is more’ mantra. Hours after hours of YouTube videos and podcasts help you get into the mindset of enjoying experiences rather than things. Not only has it helped me pull back on my expenses, it’s also – I think – made me happier. Even though I won’t lie, I do slip at times. But do you have any idea how tough it is to not pick up a peanut costume for a three-month-old?

I’m an oversaver

Shreya Bhatia, Reader Interactivity Journalist

Money matters, and I learnt this very early in life. To be precise, I learnt the importance of money in the summer of 2007, when the financial crisis startled the world. And suddenly, from having a lot of money, my family found itself in troubled waters.

That incident definitely changed my parent’s spending habits, and it altered my perspective of money forever. During that time, our home used to echo with heated conversations about debts and loans, and while I tried to detach myself from the situation, the idea of losing money was something that scared me then, and a decade later, it still does.

But things have changed for the better.

Having worked for more than a year, there is nothing better than being financially independent. However, thanks to circumstances and past experiences, I am still not able to have a lose hand with money. I’m an ‘oversaver’ – if such a thing even exists – and buying something costly for myself comes with a nagging feeling of guilt, and involves a lot of coaxing.

I always ask myself questions like:”Do I really need this? Is it worth it? Should I wait for a sale?” All this before buying almost anything.

Buying things for others is usually an easier battle to win with myself.

When you start earning, it’s relatively easy to save because young adults have fewer responsibilities and commitments. However, having a balance is healthy.

Keeping money for a rainy day is important, but that doesn’t mean you neglect the other seasons of the year. I’m still working on this.