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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel. Saving for retirement is a challenge most Americans face and research shows that challenge is complicated by basic human impulses. We know we should be saving, but we don't. We consistently make bad financial decisions. NPR's Chris Arnold reports on how emotions get in the way.

CHRIS ARNOLD, BYLINE: To understand one reason why we have such a hard time saving for retirement, I'm going to tell you a story. It's a story about my new car. Actually, it's a story about my old horrible car, but I just bought it three months ago. OK. So I'm getting into my new old Jeep here and I'm going to go see my mechanic or my body shop guy.

OK. Here's what happened. I had this old Jeep Cherokee. It was the first new car I ever bought back 15 years ago. I loved that car. But then, this jerk rear-ended me when I was stopped at a traffic light and the car got completely totaled. Insurance only gave me $3,000, but still, impulsively, I ran out with that money and bought the first car that I could find that looked like my old one to replace it.

The problem is what I got for that was a beat-up, cheap, old rusty used Jeep and now, I am, as you might imagine, having some regrets. So I can't believe this car is as rusted out as it is. And listen to that rattle. I mean, what is that? This car is like a loose, rusty, bag of bolts.

I take the car over to Elite Bodyworks in Boston. The owner, a guy named Ken Lucas, unfortunately agrees with me. How bad is the rust under the back end?

KEN LUCAS: It's extremely bad. It's probably not a very safe vehicle to drive. And I wouldn't recommend you drive it.

ARNOLD: Now, I cover financial stuff as a reporter and I've always saved a lot for retirement. But when I lost this car that I loved, it's like my primitive brain just took over. And it turns out the reason I probably made such a rash and bad decision is a reason lots of Americans make all kinds of bad financial decisions constantly.

BRIGITTE MADRIAN: You were trying to eliminate the loss.

ARNOLD: Professor Brigitte Madrian teaches behavioral economics at Harvard.

MADRIAN: You know, you experienced this loss of your car, and you wanted to make the loss go away.

ARNOLD: And it turns out, this human instinct to avoid loss, Madrian calls it loss aversion, it's very powerful. In fact, once we have something, like my Jeep, we hate losing it even more than we enjoyed getting it in the first place.

MADRIAN: It hurts twice as bad. The literature suggests that people are twice as sensitive to losses as they are to gains.

ARNOLD: Which brings us back to retirement. We know we should save, but most people hate writing a check to squirrel money away for the future. That feels like a loss from our checking account. So...

MADRIAN: The best advice by far is to take advantage of things like payroll deduction.

ARNOLD: That is, having your employer put part of your pay into a retirement account before it ever shows up in your checking account. That sort of tricks you into feeling like you never had the money in the first place. And that saves us from ourselves.

MADRIAN: The money you don't see is the money you don't miss.

ARNOLD: But the financial services industry has figured this out, too. Mutual funds and advisors, they say, hey, forget it. Don't write us a check or anything. We'll just take a percentage out of the money we're holding and investing for you. That's often very expensive over time. But people agree to it.

MADRIAN: The loss you don't see is the loss you don't feel. You know, if the return on your investment is 8 percent this year instead of 10 percent this year, you might feel perfectly happy because the investment still went up.

ARNOLD: But Madrian says, over time, if you're paying 1 or 2 percent in fees that come out of your retirement account each year over, say, 30 years, that's going to...

MADRIAN: Going to add up to a substantial reduction in what you could've saved over time.

ARNOLD: You're losing hundreds of thousands of dollars.

MADRIAN: Yeah, potentially.

ARNOLD: As for me, my Jeep will no longer start and I'm trying to get the guy who sold it to me to buy it back. Chris Arnold, NPR News, Boston.

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