People who believe they can influence the direction of their own lives by the decisions they make, save substantially more money for their retirement than those that believe their lives are controlled by fate or luck, research shows. But personality and behaviour isn’t often taken into account when it comes to policies around wealth accumulation.

Research by Centre for Health Economics researcher, Dr Sonja Kassenboehmer shows that peoples’ attitude to saving for retirement goes beyond financial frameworks and tax regulation. A greater depth of understanding is needed when it comes to the link between personality types and economic outcomes, she says.

“Economic research shows that, as humans, we don’t always act rationally. Our decisions are very irrational sometimes,” Dr Kassenboehmer says.

“Some of that comes down to our personality type and how we are wired. But if you have a long-term plan for your savings and make strategic decisions, it will undoubtedly leave you with more money when you retire.”

Locus of Control

The ability to undertake this long-term planning has to do with a person’s “locus of control”–  a term used in psychology literature that relates to the extent of which an individual believes they can control life events.

In Dr Kassenboehmer’s jointly published 2014 paper ‘Locus of Control and Savings’, she argues that peoples’ attitude to saving for retirement goes beyond financial frameworks and tax regulation and that understanding how personality and behaviour play such an important role in wealth accumulation is vital for policymakers to understand how to help retirees meet their long-term savings expectations.

The research, which examined data from the Household, Income and Labour Dynamics in Australia (HILDA) survey, determines participants’ “locus of control” in relation to retirement savings.

People with an external locus of control generally attribute life’s outcomes to external factors, such as fate, luck or the actions of other people. They largely believe they have little or no control of the direction their lives take.

People with an internal locus of control, however, believe that much of what happens in life stems from their own actions and decisions. They are strategic in their decision making and believe in making plans for the long-term.

“If you think everything is due to fate or luck, you’re not really actively taking responsibility for the decisions in your life. However, if you are pragmatic and believe the decisions you make will impact your life, then you will definitely have more savings in retirement,” Dr Kassenboehmer says.

Dr Kassenboehmer says having an internal locus of control is a key component of having greater self-control and “avoiding immediate temptation in order to achieve longer term goals”.

Locus of control is also related to the way that households with comparable salaries allocate their wealth across their assets.

Households with an internal reference person – or person who believes the decisions they make control the direction of their life— generally hold less financial wealth, or cash, but significantly more pension wealth in savings, according to the paper.

The greatest beneficiaries of having a person within a household that exercises self-control and discipline are the poor, according to Dr Kassenboehmer. She says for the poor, “economic well-being and self-control are very closely linked”.

“If governments could take this information and use it to form policies around savings, then many people might benefit when they find themselves at retirement age,” she says. “The link between personality and economic outcomes is very important when it comes to the elderly and savings.”