We fear change. It’s a fact. Think about the last time Twitter or Facebook updated its app. How many people initially complained about it? I’m guilty of eating the same thing for breakfast every day, scrambled egg whites with assorted vegetables. Don’t even think about recommending cereal to me. We are creatures of habit, and there’s a name for this behavior: the status quo bias.

The status quo bias says that people tend to prefer doing nothing over taking action. We almost always choose to maintain our current or previous decisions when given a choice. Rather than deal with the possibility of making a poor decision, we remain inactive, even if we know that inactivity is to our detriment. This is another cognitive bias that’s based on loss aversion.

The status quo bias has notable effects on savings rates. If you ask somebody to save more today, what you’re really asking them to do is sacrifice the present. In order to save, they’ll probably need to cut back on spending. Not spending when you’re used to doing so feels like losing. We all know saving money for the future is good, but that doesn’t make it any easier to part with our money in the present. When faced with the choice of increasing our savings rate or continuing with the status quo, the latter usually seems preferable.

It’s very easy to become accustomed to a certain lifestyle and whatever spending habits it entails. This reminds me of Parkinson’s Law, “Work expands to fill the time available for its completion”. I believe this applies to saving and spending too. Our lifestyle has a knack for expanding to consume the money available to it. However, that’s largely because we let it!

If we learn to recognize the status quo bias, we can stop it from victimizing our savings rates, and potentially use it to our advantage.

Richard Thaler and Shlomo Benartzi developed a plan they call Save More Tomorrow. They recognized that a combination of the status quo bias and present bias keep retirement savings rates lower than they should be. Their proposed solution actually uses the same biases to help savings rates grow. Since we overweight the present, it’s difficult to see the value of saving money for the future. However, it also makes a commitment to save more money in the future preferable to a commitment to save more money today. The Save More Tomorrow plan works like this:

“First, employees are approached about increasing their contribution rates approximately three months before their scheduled pay increase. Second, once they join, their contribution to the plan is increased beginning with the first paycheck after a raise. Third, their contribution rate continues to increase on each scheduled raise until the contribution rate reaches a preset maximum. Fourth, the employee can opt out of the plan at any time.”

This is a great way to get individuals to agree to save more. The beauty of it is that the status quo bias will likely keep individuals enrolled in such a program once it’s established. It’s way easier to commit future dollars towards retirement than it is to commit present dollars. This is accomplished by not asking individuals to spend less in order to save more, but just to save more when they make more. In Benartzi and Thaler’s first Save More Tomorrow case study, savings rates soared from 3.5% to 11.6% over a 28 month time period.

Michael Kitces also proposed a strategy where individu...