Lack of self control can make you a better saver

Often, the biggest obstacle to saving is that there isn't enough money to set aside after the bills are paid.

But other times the hardest part is establishing the habit of saving in the first place. Some people just don't trust themselves to leave the cash alone. But new research suggests that when given tools that can help them overcome that weak will power in an account that restricts how often they can access their cash, savers will take it - even when they can earn the same interest somewhere else. They also saved more in the restricted accounts as the limitations became more severe.

"People recognize their self control problems," said John Beshears, an assistant professor of business administration at Harvard Business School and one of the authors of the report. "They recognize that in the future they're going to have a desire to spend."'

Here's how the study worked: Researchers gave participants a set amount of cash and asked them to divide the money between two accounts with a goal and a certain deadline in mind. The two accounts paid the same 22 percent interest rate, but one account let them access the cash at any time and the other restricted when they could access the money.

Those who would be charged a 10 percent penalty for withdrawing money before the deadline saved about 39 percent of their pay in those commitment accounts. Participants who faced a 20 percent penalty for early withdrawal saved 45 percent of their money in the restricted account. People offered the strictest account, one that did not allow for any early withdrawal, saved 56 percent of the money they were given.

The findings suggest that sometimes the factors that have the biggest influence over financial habits are psychological, not economic, analysts say. Savers knew they could earn the same interest in the more flexible accounts, but they may not have trusted their will power. "They realize they're not actually going to save if they can get easy access to the money," said Stephen Wendel, head of behavioral science for Morningstar, a fund research firm.

In a way, the research reinforces some of the restrictions already in place for long-term savings accounts such as retirement accounts and health savings plans. People who use the funds for another purpose or withdraw the cash early often need to pay an early-withdrawal penalty of about 10 percent.

People struggle to save for long-term goals like retirement or a child's college education because they crave immediate gratification, says Rosalind Greenstein, director of research and education for American Institute for Economic Research. Having an obstacle can encourage people to think twice before dipping into the funds, she says. "It's like a speed bump," she says.

Still, the findings don't necessarily mean that increasing the penalty for early withdrawals from retirement savings would prevent people from cashing out their accounts early, Beshears says. Many people have legitimate reasons, such as illness or job loss, for tapping the funds, he says.

A more realistic solution might be to encourage people to build up emergency savings that would provide a financial cushion that they could turn to before dipping into their retirement funds, he said.

Recognizing the mental obstacles some people face with saving, new smartphone programs are popping up that offer to automate the process. Some people might be able to practice this in real life by using savings accounts that limit the number of withdrawals that can be made each month. The most important step is to create the habit, Greenstein says.