You will be able to explain present bias and how it affects saving and debt.
In January Darren decided to start saving S$300 a month. In February he pushed it to March because of Chinese New Year. In March it was the dentist, in April a friend's birthday trip, in May a busy month at work. By August he still hadn't started, and every delay had felt reasonable at the time. If he'd started in January he'd have S$2,100 more than he does now, before any interest. Nothing dramatic stopped him. Each month, now simply won against later.
Try this. Would you rather have S$100 today or S$110 in a week? Many people take the S$100. Now try a second version. Would you rather have S$100 in 52 weeks or S$110 in 53 weeks? Most people who took the money today in the first question now choose to wait the extra week for S$110.
The two choices are the same trade, one week of waiting for S$10. Yet the answer changes depending on whether "now" is involved. Economists call this present bias: people give extra weight to what happens right now compared with anything later, much more than ordinary patience would explain. When both options lie in the future, people are fairly patient. When one option is available immediately, patience drops.
The economist David Laibson built some of the best-known models of this pattern in the 1990s, showing how it explains people who sincerely plan to save and then don't. The tendency itself had been described earlier by others. The evidence is strongest for things like effort, food and spending on treats. Some careful lab studies have found less present bias in simple choices between sums of money, so it's fair to say the pattern is real but varies by situation and person.
Present bias explains Darren's seven months better than any lack of knowledge. In January, starting in February sounded great: the cost was in the future and the benefit was clear. When February arrived, the cost of saving S$300 was suddenly today's cost, weighed against today's wants. Next month looked easier again. It always does, because next month is never the month you're in.
This is the trap of plans made for the near future. The plan is set by a patient version of you looking ahead. It's carried out, or not, by an impatient version of you living in the present. The two disagree, and the present one gets the final say.
The same pattern shows up in paying down debt, starting to invest, cancelling a subscription, booking a medical check-up and reviewing insurance. Anything with a cost today and a benefit later is exposed to it.
Present bias also bends borrowing decisions. Taking something today and paying later moves the benefit into the present, where it counts extra, and the cost into the future, where it counts less. So the deal feels better than the numbers say.
That's part of why instalment plans, BNPL and car loans are easy to agree to. A S$3,000 holiday on a card instalment plan delivers the holiday now and spreads the S$3,000 over months that feel distant. Present bias doesn't make borrowing wrong. It means you'll tend to underestimate how much the future payments will hurt when they arrive. Lesson 4.1 showed the same effect in how BNPL splits a price.
There's useful news inside the second question. When both options were in the future, people chose patiently. That suggests a method: make decisions about the future in advance, when the costs are not yet in the present, and then make them hard to undo.
The patient version of you is the one deciding, in that case, and the impatient one only has to live with the decision. A standing instruction that moves S$300 to savings on payday has already been decided by the time payday comes. A plan to save half of a future pay rise, made before the rise arrives, costs nothing today. Lessons 5.2 and 5.3 build on exactly this idea.
Darren's mistake wasn't wanting to enjoy February. It was leaving the saving decision to be made fresh each month, by the person least likely to make it.
In late August he finally set up a S$300 transfer on payday, the one that appears in his log from lesson 1.4. Then, in his log, he wrote down every month he'd delayed and the reason he'd given, and noticed that none of the reasons were the same but all of them were about something happening that week.
Think of one saving or spending plan you've postponed more than once, and recall the reason you gave yourself each time.
Write one saving or spending plan you have delayed more than once and the reason you gave each time.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).