People often mistake “self-interest” for “selfishness.” While they share similarities, their distinctions illuminate the deeper intricacies of human motivation. This difference between self-interest and selfishness can be better understood through the consumption-savings framework, which explores how individuals balance immediate desires with future considerations. In economics, this framework helps analyze how individuals allocate resources over time, generally focusing on the trade-off between immediate consumption and future savings. Yet, this model also uncovers a richer understanding of self-interest when viewed through the lens of personal and collective motivations.
Self-interest lies on a spectrum from selfish to selfless, where personal desires coexist with empathy and responsibility. Most individuals make choices that blend these aspects, balancing short-term needs with longer-term ethical considerations. Reinterpreting the consumption-savings model in this light shows how financial and moral dimensions intersect in our everyday decisions.
About the author: Jeff Hulett leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.
Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.
The Consumption-Savings Framework in Economics
The consumption-savings framework, also known as the life-cycle hypothesis, was first introduced by Franco Modigliani in the 1950s. According to this model, individuals make consumption and saving decisions by planning their lifetime resources over time. In early life, individuals may borrow or consume more than they earn, expecting future income to compensate. In middle age, they focus on saving, anticipating reduced income in retirement. Finally, in old age, savings are drawn upon for consumption.
This framework is fundamentally about managing intertemporal choices—decisions that involve trade-offs between present and future utility. In most economic models, consumption today provides immediate satisfaction, while savings represent deferred consumption, which provides future utility. The uncertainty of future outcomes makes saving a more complex decision, as it involves forgoing immediate pleasures for future benefits. This basic economic framework can help us understand how individuals make choices not only in financial matters but also in personal and moral decisions.
Recasting the Consumption-Savings Framework as a Self-Interest Continuum
Just as economists analyze consumption and savings in the financial realm, we can apply a similar model to human motivations along the selfish-selfless continuum of self-interest. Self-interest, like economic decision-making, involves weighing present versus future benefits, but it operates on a broader scale, encompassing moral, social, and environmental concerns.
In this reframed model:
Selfishness aligns with consumption, where individuals prioritize their immediate self-interests. These decisions benefit the individual in the short term and often involve lower uncertainty because the rewards are immediate and tangible. In this context, consumption represents actions that serve current desires or needs, whether it is accumulating wealth, maximizing personal comfort, or satisfying immediate cravings.
Selflessness aligns with savings, where individuals act in ways that defer personal gratification for future benefits—either for themselves or for others. These actions often involve greater uncertainty, as the rewards may not materialize immediately and could be directed toward future generations or society at large. Saving, in this context, represents the idea of sacrificing now for a larger, long-term gain.
Just as savings may be considered delayed consumption in financial models, selflessness can be viewed as delayed selfishness in the self-interest framework. A person who engages in selfless acts today—whether through charitable giving, environmental conservation, or caring for others—is effectively investing in future outcomes, whether they benefit themselves, their community, or the planet. From an impact standpoint, since a person is a member of their community and planet — selfless acts often have benefits to self in the future. These actions have parallels to economic savings: both involve forgoing immediate benefits for a greater future payoff, even if the individual acting selflessly does not experience the benefits directly.
Balancing Self-Interest and Karma: Lessons from Environmental and Social Choices
To further illustrate this point, consider the case of environmental sensitivity. A person who engages in actions to protect the environment, such as recycling or reducing energy use, is often making a sacrifice in the present. These actions may require additional time or resources without providing immediate personal benefit. However, from the perspective of the consumption-savings framework, these selfless actions are akin to saving: the individual is investing in a healthier environment for the future, possibly benefiting future generations or ensuring their own long-term well-being. This concept is similar to karma, a key principle in Hinduism, Buddhism, and Jainism, which holds that one’s actions, good or bad, will return to them in the future. In this sense, selfless environmental actions could be seen as positive karma, where present sacrifices eventually lead to rewards, whether personal or collective.
In my article Adam Smith and How Choice Architecture Makes the Invisible Hand More Visible, I explain that “selflessness may be considered delayed selfishness,” suggesting that selfless actions can be viewed as investments in future benefits. My exploration of Adam Smith’s ideas on self-interest highlights how the invisible hand works through the balance of short-term and long-term decision-making. While people may act out of self-interest, those interests often align with the well-being of others, particularly when considered over the long term—an idea also reflected in the karmic principle of cause and effect.
Another example lies in parenting. Raising children is often viewed as one of the most selfless acts a person can engage in, requiring years of sacrifice and dedication with no immediate material reward. However, as Richard Dawkins famously argued in The Selfish Gene, our devotion to our children can also be seen as serving our genetic self-interest. Parents invest in their children because they are passing on their genes to the next generation. From this perspective, parenting is a form of long-term savings: parents sacrifice their time, energy, and resources in the present, with the expectation that their children—and thus their genetic legacy—will survive and thrive in the future. Dawkins referred to human beings as “survival machines,” driven by our genome with a singular “selfish” goal: to ensure the continuation of our genes through our children.. This blend of selflessness and selfishness mirrors both the consumption-savings dynamic in economics and the karmic principle of future returns from present actions.
Cognitive Biases and the Challenge of Long-Term Decision Making
Understanding self-interest through the consumption-savings framework helps highlight the difficulties individuals face in making long-term, selfless decisions. Just as individuals may struggle to save money for future needs because of the lure of immediate consumption, they may also struggle to act selflessly when the benefits are uncertain or far in the future. Cognitive biases, such as present bias (the tendency to prioritize immediate rewards over future gains), play a significant role in these challenges.
Economists and behavioral scientists have long studied how cognitive biases affect financial decision-making, leading to under-saving and over-consumption. The same biases apply when individuals weigh selfish versus selfless behavior. Without a clear understanding of the future benefits, individuals are more likely to focus on immediate self-interest. This highlights the need for decision tools, such as choice architecture, to help guide individuals toward better long-term decisions, both in financial matters and in moral or environmental contexts. As Hulett notes, “Choice architecture makes the invisible hand more visible,” ensuring that individuals can more clearly see the long-term impact of their choices.
Conclusion: The Interplay of Self-Interest and the Consumption-Savings Framework
Recasting the consumption-savings framework in the context of self-interest offers a powerful lens through which to understand human decision-making. Just as individuals must choose between spending and saving their money, they also face choices between selfish actions that provide immediate rewards and selfless actions that defer gratification for future benefits.
By viewing self-interest as a continuum between selfish and selfless preferences, we can better appreciate the complexities of human motivations and the challenges people face when making decisions that impact the long term. Whether acting to save for retirement or to protect the environment, individuals are constantly balancing immediate needs with future goals. Understanding these dynamics, and recognizing the role of cognitive biases, is crucial for promoting better decision-making across all aspects of life.
References
Hulett, Jeff. Adam Smith and How Choice Architecture Makes the Invisible Hand More Visible, The Curiosity Vine, 2023.
Modigliani, Franco, and Brumberg, Richard H. “Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data.” In Post-Keynesian Economics, edited by Kenneth Kurihara. Rutgers University Press, 1954.
Hawley, Jack. The Bhagavad Gita: A New Translation. New World Library, 2011.
Dawkins, Richard. The Selfish Gene, Oxford University Press, 1976.
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