Dear Economist

Saving in a whisky bottle

Dear Economist,

At the end of each day my friend puts all his loose change into a large (empty) whisky bottle. After six months he banks £300. This seems a good way of saving. What do you consider are the pros and cons of this method?

— Gordon Scripps, Cambridge

Dear Mr Scripps,

The advantages of your friend’s approach are, at first sight, unclear. He frequently rids himself of loose change, but by doing so ensures that every transaction generates yet more change. He also deprives himself of £5 a year in interest.

Carrying a bottle of coins to the bank every six months seems more hassle than setting up a standing order into a savings account, but perhaps such a bottle on the mantelpiece is what passes for a conversation piece in Cambridge. Let us assume, therefore, that the excitement of such a savings method is adequate compensation both for the inconvenience and the lost interest.

Even then, there is no obvious merit to this scheme. So, my guess is that your friend values the way that saving appears painless. This is inexplicable behaviour according to the textbook, but the broad-minded economist Thomas Schelling would argue that your friend’s behaviour is best explained by a split personality. Your friend wants to save on behalf of his long-term future self, yet realises that this evening he will be a different person, blowing any loose change in the pub fruit machines.

The whisky bottle is a strategic commitment device in the three- player game between your friend this afternoon, your friend this evening and your friend in retirement. Unfortunately, I don’t think £50 a month will provide much of a pension. I doubt that it will even pay for the psychiatrist.

First published at ft.com.

3rd of July, 2004Dear Economist • Comments off