When economic discipline can help our deficiencies in willpower

Another year, another swag of New Year’s resolutions. Let me guess. Exercise more? Cut down on booze? Don’t eat so much junk? Save more?

Let’s face it, failing to achieve these resolutions is almost as common as making them. All is not lost. Economics, at least the ­realistic variety, can offer an explanation why and even some help on how to boost your chances of success this time.

The struggle against procrastination has been part of the human condition at least as long as we’ve had chairs. But traditional economics has assumed our preferences are “time-consistent”. That is, we can be impatient, in varying ­degrees, but we must be so in a highly rational way: the rate at which we prefer good things now — consumption and leisure, say — rather than in the future must stay constant over time.

Economists do this mainly ­because it makes the maths easier (and, for some, blunts arguments that favour corrective state intervention) but introspection and evidence overwhelmingly suggest they are inconsistent.

No matter how much you tell yourself you’ll get up early and ­exercise, when the alarm goes off you’ll hit the snooze button. You’re resolutely not drinking alcohol at dinner until your friends start. We’re rational about the future until it arrives; we give more weight to the present as it gets ­closer to us in time.

Economists Matthew Rabin and Ted O’Donoghue crystallised the problem well in a 1999 article in the American Economic Review: “When presented a choice ­between doing seven hours of unpleasant activity on April 1st versus eight hours on April 15, if asked on February 1st virtually everyone would prefer the seven hours on April 1. But come April 1, given the same choice, most of us are apt to put off the world until April 15th.”

The first step is to recognise that you, like everyone else, has a problem. “Naivety can lead you to repeatedly procrastinate an ­unpleasant activity under the ­incorrect belief that you will do it tomorrow,” they say, suggesting it’s better to become “sophisticated” — that is, recognise self-control problems are inevitable.

Then it boils down to becoming ruthless with your future self, who is quite capable, and indeed likely, to override whatever sensible decisions you’re making today. You need to threaten him or her with embarrassment and ­financial costs to curb the likelihood he or she will thwart your ­intentions.

For a start, make sure you’re goals are “verifiable”, which is one that a third party could objectively judge whether it has been achieved or not. Vaguely promising to “cut back” or do “more” of something is almost guaranteed to be futile. They need to be measurable, achievable and ideally simple.

Then the key is increasing the costs to your future self from not following through. Put your alarm clock far from your bed so you need to get up to turn it off.

The desire to avoid embarrassment is a powerful motivator. ­Arrange to exercise with others, or hire a personal trainer, so you can’t easily put it off. If you’re planning on not drinking when you’re out, tell people before you arrive so your future self will look weak if he or she succumbs to social pressure.

Or at least tell your friends and family what you’re doing. For ­instance, when I decide to run a marathon, I make a bit of a song and dance about it on social media many months earlier. That makes it almost impossible for me, absent an injury, to wriggle out of it.

One of the glories of journalism is frequent, hard deadlines, ­enabling otherwise ordinary people to produce levels of output other industries can only dream of. Create these for yourself, with real consequences if they’re unmet.

If you aren’t willing to try these, perhaps you don’t really want to achieve your resolutions. St ­Augustine famously implored God to grant him “chastity and continence, but not yet”. There’s nothing wrong with honesty.

Among unfulfilled resolutions, the inability to follow through with savings plans has the biggest consequences.

Society has already developed “commitment mechanisms” to help less disciplined people with their finances, such as the humble mortgage. Advisers might point out how renting can be financially more sensible than buying a home, if renters save consistently in the stockmarket. Indeed, the costs of home ownership — rates, repairs, depreciation, utilities, etc — are often overlooked in comparison.

But that misses the extra benefit of having a mortgage: it creates a commitment to save. A mortgage, especially for people who pay little attention to their finances, in effect compels workers to build wealth in a way they wouldn’t if their disposable ­income were higher.

Asking your employer to direct a portion of your salary into your superannuation account is also wise. Untangling it requires your future, lazy self to incur administrative hassle. Extra saving in super also increases the salience of the costs you are bearing in your superannuation account, which for most Australians are wildly greater than they should be.

While governments can’t change individuals’ inclinations to save, they can at least help them appreciate the costs of not doing so. Financial literacy is abysmal in most countries and could be ­improved by better focusing on ­financial matters in school.

An OECD study last year ­revealed that barely more than 40 per cent of a sample of almost 52,000 adults across 30 countries knew whether a $100 savings ­account compounding at an interest rate of 2 per cent a year would grow to more or less than $110 over five years. Only 60 per cent had any budget, half bothered setting financial goals and trying to achieve them, while only 44 per cent shopped around when selecting a financial products.

Thankfully, emerging mobile apps such as Pocketbook are at least making it harder for people’s future selves to overspend through lack of timely information. Willpower, alas, is still another matter.