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When you imagine how you'll look a few decades on, you'll be better able to understand your needs. (Stefano Lunardi)
When you imagine how you'll look a few decades on, you'll be better able to understand your needs. (Stefano Lunardi)

Smart Cookies

Saving face: Can you picture yourself in retirement? Add to ...

Today I try to take a thoughtful approach to allocating my tax refund.

Years ago it would have been earmarked for a vacation or a shopping spree. An extra bit of cash goes a long way towards these luxury purchases. I’m not alone in opting for a splurge over a save, but it doesn’t have to be one or the other. In fact, we should do both with our refunds.

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Sarah Gilbert, a writer for the personal finance blog GetRichSlowly.com, says we should earmark 5 per cent for something fun. The rest of the money, however, should be put towards our financial priorities.

It seems saving for retirement is moving up the list of financial priorities for young people, but still less than half of Canadians between 18 and 34 have started saving for retirement, according to an annual Royal Bank of Canada RRSP poll released last month. People in my demographic, 18 to 34, have a number of priorities fighting for the top spot, and it’s understandable that saving for the future gets pushed to the bottom.

One reason many of us fail to allocate enough funds for retirement is that we have a difficult time visualizing what we will be like when we are older. We can’t imagine or relate to the person we will be 20 or 30 years from now, so we take a more present approach with our spending, according to a new study published in the Journal of Marketing Research.

“To those estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now,” say the authors of the report. They go on to argue that we suffer from an “empathy gap” and misunderstand how we will feel years from now about decisions we make today.

To test their theory, they used technology to show young participants realistic images of themselves years from now. After seeing the vivid depictions of their older selves, each participant made more future-oriented choices, including saving more. In fact, those who saw age-enhanced images assigned more than twice as much money to savings for retirement than those who simply saw images of themselves in the present.

It is tough to imagine our future selves, especially since most of us do what we can to remain as physically youthful as possible. Plus, we are only ever told to imagine what our lives will look like when we hit retirement (golfing, travelling, spending time with the grandkids), not how we will look. But visualizing the entire package is apparently one of the best ways to connect to our future self and encourage saving for the future.

Even if we don’t have the technology to see a realistic future depiction if ourselves, we can still test the theory. Spending a few minutes visualizing before we prioritize our spending and savings might actually help us connect to our 60-year-old selves, and therefore strike a better financial balance.

Angela Self is one of the founders of the Smart Cookies money group. Read her weekly column on managing debt and saving money at the Globe's personal finance site.

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