LESSON 2Self-Control Beats Passion

For the past few years, the average American savings rate has been about 5 percent, which lags far behind Europe’s 10 percent and Japan’s 40 percent. Still, it’s an improvement, considering that in 2005 Americans saved just 1.9 percent, a record low. Bear in mind that those statistics do not include stock holdings, so if Bill Gates, for example, holds most of his wealth in Microsoft stock, he could be deemed a low saver. But even taking stock holdings into account, it’s impossible to deny that Americans are comparatively poor savers. Twenty-four percent of us owe more money on our credit cards than we have in emergency savings. One-fifth of us don’t even have savings accounts, and more than a third of American adults have not begun saving for retirement.

Why can’t we show more self-control? For the past 40 years, an increasing number of behavioral economists have argued that most people do not act like the rational agents who populate economics textbooks. Instead of optimizing their personal and business goals, they do things that behavioral economist Dan Ariely describes as “predictably irrational.”1 Entrepreneurs, as you will see, have their own foibles, but excessive spending on ourselves is not one of them. This was brought home to me when I was in my twenties and working 80-hour weeks to grow my first business, while many of my peers in normal job situations were spending their evenings working on their social lives.

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