Locking In Good Behaviour
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A commitment device is an arrangement you make in advance that restricts your future choices, binding you to a course of action you intend to follow but might not when the moment arrives. The logic is simple: you know that your future self will face temptations and biases that your present, forward-thinking self wants to protect against.
The concept has ancient roots. In Homer's Odyssey, Ulysses ordered his crew to tie him to the mast so he could hear the Sirens' song without being able to act on it. He used a commitment device precisely because he knew he couldn't trust his future self to make the right decision in the heat of the moment.
Commitment Devices in Personal Finance
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The most powerful financial commitment devices work by making the desired behaviour automatic and the undesired behaviour effortful:
Automatic savings transfers. Moving money to savings immediately on payday — before it enters your spending account — removes the need for willpower. The money is never perceived as available to spend.
Term deposits and locked savings accounts. These add friction to accessing savings before a target date, protecting against impulse withdrawals. The penalty for early withdrawal is a deliberate commitment device.
Employer pension contributions. Pre-committing to a pension contribution rate, especially one that increases with each pay rise, harnesses present alignment (when you're thinking clearly about the future) to protect against future present bias.
Automation as a Commitment Strategy
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Automation is the most accessible form of commitment device available. When you automate an investment or savings transfer, you are effectively making one good decision that executes itself repeatedly — replacing dozens of future decisions that would each be subject to present bias, laziness, or rationalisation.
The research consistently shows that automation is more effective than good intentions. People who intend to save when they "have more money" rarely do. People with automatic transfers save reliably regardless of their intentions in any given month.
Designing Your Own Commitment Devices
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Effective commitment devices share a few features: they are pre-set before the temptation arrives, they require active effort to undo, and they exploit present bias (making inertia work for you). Identify the financial behaviours you know are right but struggle to execute, then ask: how can I make this automatic and the alternative difficult?