What makes some people focus on squirreling away a large nest egg, while others are hopelessly oblivious to reminders to save and end up in debt? It turns out that the psychology of saving is complex, and surprisingly little research has been published on the subject.

Here's what we do know, and how you might help your clients have a healthier relationship with money. Two extreme examples from my practice as a financial planner illustrate the challenge.

The spender. A 62-year-old physician, making roughly $350,000 a year, came to me asking for a review of his finances and an evaluation of his goal of retiring in two years. After going through the foot-high pile of documents he left me, I calculated that he had a net worth of about $50,000.

In looking at his lifestyle, I observed with concern that he didn't seem to believe in delayed gratification. There was nothing I could do for him other than deliver the bad news that his goal was overly optimistic. He politely thanked me for my time, walking away with his box full of documents and unrealistic expectations. I'm guessing his thoughts weren't quite so polite.

The saver. Another man was just a bit older than this physician and worth tens of millions of dollars. He was developing some health problems and complained about his primary care physician. When asked why he didn't see another physician, he explained that he would have to go out of network and this would cost him a higher co-pay and deductible.

I attempted to persuade him that his health was hardly a luxury item. He responded, "I know, I know," much in the same way I respond when someone comments on an unhealthy food choice I'm indulging in. He did eventually seek out a different physician when he faced a life-threatening illness.

Both of these men have an unhealthy relationship with money. The spender, lacking self-control, will work the rest of his life. The saver's excessive self-control will only ensure that he ends up as the richest man in the graveyard.

THE MILLIONAIRE NEXT DOOR

Classic economics assumes we would think much differently during purchases than we actually do. As Duke University behavioral economist Dan Ariely explains, when we buy a new car, classical economics imagines we're thinking, "How many dinners out a month will I have to miss to pay for this?" or "How many more months does this add to my retirement date?"

Instead, we get excited about that new car smell and how great we will look when our friends see us driving around the neighborhood. As we earn more money we expect nicer cars, a phenomenon psychologists call the "hedonic treadmill."

However, as Thomas Stanley and William Danko revealed in their 1996 best-selling book, The Millionaire Next Door, some of the very highest earners are thrifty. They tend to drive older cars, shop for bargains and not tout their wealth.

The millionaire next door has hopped off the "hedonic treadmill." Most studies show that we are no happier with the Lexus than we were with the Ford because we adapt our expectations quickly. By the way, did you know that a couple leasing a $60,000 Lexus every two years spends $2 million more than a couple who drives an inexpensive car for 10 years?

The most common theory about why some of us hop off the hedonic treadmill and others keep pedaling is that we learn our habits from our parents. As intuitive as that sounds, it's not true. Stanley's research has shown that the children of millionaires often need heavy doses of economic outpatient care to sustain their high consumption.

I suspect that your clients tell you about one child who is a successful saver while the other is hopelessly in debt. It appears that neither nature nor nurture alone can explain the difference. As Jason Zweig, author of the "Intelligent Investor" column for The Wall Street Journal, told me, as with all behaviors, spending habits arise from the intersection of many causes.

And while there are many complex causes that drive our behaviors, there are two very different motivators that seem to cause us to be thrifty. The first is the pain we feel from spending money. The second is the pleasure we feel from either saving or from paying less by getting a good deal.

THE PAIN OF PAYING

Tightwads experience spending as unpleasant, which holds them back, while spendthrifts simply don't feel the pain, according to "Tightwads and Spendthrifts," a 2008 study by Scott Rick, Cynthia Cryder and George Loewenstein in the Journal of Consumer Research. The authors scanned the brains of study participants who made imaginary spending decisions (in the lab). The more activity that showed up in an area of the brain called the insula, which is commonly stimulated by unpleasant experiences such as disgusting odors, the less likely the participant was to buy.

The authors hypothesized that the people with more insula activity tended to be tightwads and those who experienced less were spendthrifts. This idea was borne out when the participants answered questions about their emotions related to spending.

As Rick, of the University of Michigan, noted, there is only a very weak relationship between the answers given by parents and children, based on his research from the "tightwad-spendthrift" questionnaire. We can't really blame our parents for our bad habits. And when it comes to men and women, Rick also mentioned that there appeared to be no pattern related to gender and spending.

Instead of a family pattern, Rick found that tightwads tended to be more anxiety-prone. I've noticed this in my clients, and the opposite as well: The spenders I meet with little or no nest-eggs tend to be very optimistic about their financial future, with a strong belief that things will take care of themselves.

Are spenders more optimistic in general? "It's a reasonable hypothesis," Rick says, but there's no research to prove it at the moment.

According to his study, only children are more likely to become spenders. One theory, Rick says, is that an only child experiences less delayed gratification than his or her counterparts with siblings.

Based on their research, Rick and his colleagues designed a questionnaire to determine where people fall on the Tightwad-Spendthrift (TW-ST) Scale (see graphic at the end of this story). One strategy with clients might be to use this questionnaire to help them understand where they fit on the spending scale.

THE JOY OF SAVING

For the frugal, saving brings joy, Rick found in his study. They also enjoy a "good deal," or bargain. We all do, but savers enjoy it more

What defines a "good deal"? We need to pay less than others pay. Most people know they can find gold jewelry at "half-off," so they must get it for an even better bargain to experience this particular joy of the frugal.

As behavioral economist Meir Statman of Santa Clara University explained to me, a $70 steak will taste much better if you get it for $7, but only if you know it's a $70 steak. If you think it's really a $7 steak, it probably won't taste as good to you. For spendthrifts, spending $70 on a steak isn't painful, and they typically assume it's well worth the price. I have noticed that some people seem to prefer paying full price, perhaps for this reason.

TEACHING WILLPOWER

How to raise children to be sane about money is a subject dear to parents, but little understood. Statman cites research that shows "payment for chores enhanced economic self-efficacy in children as they matured into adults." On the other hand, he believes that giving children allowances that haven't been earned in some way can teach dependency and a sense of entitlement.

A famous experiment conducted at Stanford University back in the 1960s tested how well nursery school children delayed gratification. They were asked to pick a treat from a tray of marshmallows, cookies and pretzel sticks. They were then told they could either eat it right away or, if they waited a few minutes, they could have two of what they chose. Thus, they could double their treat if they delayed gratification.

The experiment then followed the subjects of this experiment into adulthood, finding that those able to pass this "marshmallow test" enjoyed greater success in life. Walther Mischel, the Stanford professor in charge of the experiment, said that delayed gratification could be taught to the children using mental tricks. For example, delayed gratification increased when the children were taught to think of the marshmallow as a picture surrounded by an imaginary frame. Not snacking before dinner and holding out until Christmas morning are really cognitive exercises, according to Mischel.

Mischel said that he was giving the children a mental user's manual. Willpower is just a matter of learning how to control your attention and thoughts. Understanding this can lead to great improvement. "We should do what we can to cultivate a child's joy of saving," Rick says, adding that we shouldn't simulate the pain of paying to teach children to spend less.

CAN PEOPLE CHANGE?

Rick measured the personality traits of tightwads and spendthrifts over time and found they were remarkably stable. Spending, however, can be changed to some degree. It's all in the way the buying decision is framed.

Rick notes that the participants in his studies were more likely to make a purchase if the cost were a "low five dollar fee," rather than if it were merely a "five dollar fee." Adding the word "low" changed behavior. Similarly, Ariely explained to me that people typically will enjoy a vacation more if it's prepaid up front rather than forking over the funds at the end of the vacation. When they make the payment affects their behavior.

Most of us feel better spending money on practical things, rather than luxuries. In his recent book, What Investors Really Want, Statman recounted an experiment where more women chose a spa package valued at $80 over $85 cash, although they would spend the $85 on groceries.

For savers, it's especially important to frame a purchase as practical if you want to encourage them to buy. A massage is worth the price if it reduces stress and improves health, not because it's pleasurable. A spender, on the other hand, is less likely to buy if he or she is spending cash rather than racking up credit.

While it's not easy to change someone's behavior in adulthood, "Framed!," on page 80 has some suggestions on reframing. As financial planners, we tend to encounter more savers. Reframing for the spenders, however, might be a useful tool we can pass on to our clients for helping their adult children.

Allan S. Roth is the founder of Wealth Logic in Colorado Springs, Colo., the author of How A Second Grader Beats Wall Street and an adjunct faculty member at Colorado College.

[IMGCAP(1)]

[IMGCAP(2)]