Ratchet effect

Many people often hear about some personal habits, but they don’t know that some so-called habits are actually related to mental illness. The ratchet effect is not a common mental illness, but it can be regarded as a personal, habitual consumption image that leads to uncontrollable spending, difficulty in saving money, and spending all the money earned.

After deciding to start financial management, many people will combine various methods to maximize the financial management results. However, in the process of financial management, everyone will always encounter some problems, and one of the most common problems is the inability to save money.

Although many people remind themselves to spend less and save money every time, it is very difficult to actually do so, and in the end there is still only so much money. So what is the reason why you can't save money? Before solving the problem, Tianjinsuo editor will first let you understand a term "ratchet effect".

The ratchet effect, also known as the braking effect, refers to the irreversibility of people's consumption habits after they are formed, that is, it is easy to adjust upward but difficult to adjust downward. Especially in the short term, consumption is irreversible and its habit effect is greater. This habit effect makes consumption depend on relative income, that is, relative to one's past peak income. Consumers tend to increase consumption as their income increases, but are not likely to reduce consumption when their income decreases, resulting in a short-term consumption function with a positive intercept. This characteristic is called the ratchet effect.

In fact, there is a sentence in the family letter "Instructions on Frugality and Advice to Kang" written by Sima Guang, a great politician of the Song Dynasty, which can explain the ratchet effect more simply, that is: It is easy to go from frugality to extravagance, but it is difficult to go from extravagance to frugality.

Based on the ratchet effect, it is not difficult for us to understand why we cannot save money. The editor of Tianjinsuo believes that when a person decides to start managing his finances, he may have already developed the habit of spending money lavishly. It would definitely be difficult to ask him to spend less and save more money all at once. It is especially difficult to control your spending when your salary remains at the original level and has not been reduced.

But, look at this problem from the other side. If you don't control your consumption from now on, the ratchet effect will likely continue to increase as your salary increases in the future, and your expenses will increase, making it even more difficult to save money.