This article was published on 2 September 2008. Some information may be out of date.

Is saving always good?

In some circles, saving has a bad name. People think it’s about deprivation — “I either save or I spend, and spending is more fun.”

Savers, however, almost always end up able to spend more in their lifetimes than those who don’t save. Returns on savings are usually higher than inflation, so if you put away $1,000, that money is highly likely to end up buying more in the future than $1,000 would buy now.

The difference between saving and spending, then, is really about spending a certain amount now versus spending more in the future.

This leads us to the psychological concept of deferred or delayed gratification, the ability to wait for something you want — an ability that is said to be important to success in life.

The online encyclopedia Wikipedia describes an experiment looking at this concept as follows: “In the 1960s a group of four-year olds were tested by being given a marshmallow and promised another, only if they could wait 20 minutes before eating the first one. Some children could wait and others could not.”

In follow-up testing, researchers found that those who could wait grew up to be better adjusted and more dependable, and scored higher on an academic test.

Does this mean savers are more likely to do better in life than spenders?

The fact that savers will probably end up with more money in total doesn’t necessarily mean saving is always better.

Over the short term, saving is the clear winner. If you want an overseas holiday or a new car every few years, it’s far better to save for it beforehand, earning interest on your money, than to make the purchase on credit and then pay interest on it.

People who switch from the habit of spending first and paying later to saving before they spend will end up thousands of dollars richer over a lifetime. They make interest their friend rather than their enemy.

Over the longer term, though, it’s more complicated.

Let’s assume that you would prefer to have roughly equal purchasing power over your life — spending $50,000 every year rather than $20,000 half the time and $80,000 half the time. The extra pleasure from spending up large in the $80,000 years probably doesn’t make up for the deprivation in the $20,000 years.

The object of saving, then, might be to even out your lifetime spending — or perhaps we should say your discretionary spending, over and above the basics. If you are supporting family members and paying off a mortgage, you need to spend more than you probably will in the future when, hopefully, those costs will no longer be there.

Alternatively, you might want to allow for a gradual increase in discretionary spending. This gives you something to look forward to, and also a buffer against the unknown.

All of this often leads — at least amongst those who can cope with deferred gratification — to considerable saving for retirement. And generally that’s great.

It should be said, though, that some people overdo retirement saving, giving up too much current spending.

True, nobody knows how long they will live or what their retirement health expenses might be. But retired people often say they spend less than they expected, and if they have major health problems they don’t tend to spend as much on other items such as holidays or entertainment.

The Retirement Commission’s website,, has tools to help you work out whether you are saving enough — or perhaps more than you need — for retirement. It’s worth checking out your situation. You may be depriving yourself unnecessarily now.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.