Nav: Home

Focus on future to save more money

August 04, 2016

DENVER - When it comes to personal finances, impulsiveness and materialism can lead to bad decisions and a failure to save enough, but research presented at the annual convention of the American Psychological Association suggests that when people focus more on the future, they tend to be less impulsive, regardless of their level of financial literacy.

"Our results suggest that by helping people to create vivid, detailed mental pictures of their future, we may be able to help people make better financial decisions," said Sarah Newcomb, PhD, a behavioral economist at Morningstar, who presented the research.

As life expectancy continues to grow in the United States and fewer employers offer fixed-income retirement programs in the form of pensions, there is a greater need than ever for individuals to save for their retirement themselves, according to Newcomb. Unfortunately, savings rates have dropped to only about 40 percent of what they were in the 1980s.

"We wanted to better understand the psychological factors that drive consumer spending and saving with the hope of identifying and targeting those that could potentially motivate more saving and investment among people who have adequate resources but poor financial management skills," she said.

In the study, Newcomb and her colleagues conducted an online survey of over 700 adults in the United States (57 percent male; 47 percent had a bachelor's degree or higher). Participants were asked questions designed to measure financial behaviors as well as attitudes known to be associated with saving or spending, including impulsiveness, materialism, financial literacy and the extent to which they think about the future.

As expected, the researchers found that high levels of impulsiveness and materialism were associated with poor financial decision-making (i.e., more spending, less saving). They also discovered that while financial literacy and the way people think about the future were both associated with good financial decisions, the strongest predictor was not literacy but focus on the future.

Further analysis suggested that the only relationship that could be found among the four attitudes was between impulsiveness and future focus. Individuals who spent more time contemplating events yet to come scored significantly lower in impulsiveness.

These findings offer a starting point for developing behavioral interventions to promote savings, budgeting, and other positive financial interventions, according to Newcomb.

"The U.S. government has invested hundreds of millions of dollars into financial literacy programs, but these findings suggest that financial literacy alone may not be the answer," she said. "Working with individuals to develop a clearer picture of their future may have a more substantial impact than simply teaching financial concepts."

One finding Newcomb said was completely unexpected involved those individuals who did not use credit: The effect of impulsiveness on bad financial behavior disappeared.

"This suggests that the first line of intervention for better financial health among people who struggle with impulse problems may be to stop the use of credit cards altogether," said Newcomb.

However, for those unwilling to cut up their credit cards, there may be a solution. Simple visualization and writing exercises designed to help people create vivid, detailed mental pictures of their future help them improve their financial behaviors and ultimately their lives, she said.
-end-
Session 1109: "Overcoming Impulsiveness: Identifying Prime Targets for Interventions to Improve Financial Behavior," Paper Session, Thursday, Aug. 4, 10 - 10:50 a.m. MDT, Room 112, Level 2, Meeting Room Level, Colorado Convention Center, 700 14th Street, Denver.

Presentations are available from the APA Public Affairs Office.

Contact: Sarah Newcomb at Sarah.Newcomb@morningstar.com or by phone at (202) 803-5247 x128.

The American Psychological Association, in Washington, D.C., is the largest scientific and professional organization representing psychology in the United States. APA's membership includes more than 117,500 researchers, educators, clinicians, consultants and students. Through its divisions in 54 subfields of psychology and affiliations with 60 state, territorial and Canadian provincial associations, APA works to advance the creation, communication and application of psychological knowledge to benefit society and improve people's lives.

http://www.apa.org

American Psychological Association

Related Literacy Articles:

OHIO study: Information literacy can combat 'fake news'
It's not difficult to verify whether a new piece of information is accurate; however, most people don't take that step before sharing it on social media, regardless of age, social class or gender, a new Ohio University study has found.
Health literacy linked to blood pressure medication adherence among Hispanics
Good health literacy is associated with better adherence to blood pressure medications among Hispanic individuals with high blood pressure, finds a study by NYU Rory Meyers College of Nursing and Columbia University School of Nursing.
Low health literacy associated with early death for cardiovascular patients
Patients hospitalized with a cardiovascular event are more likely to die within one year if they have low health literacy, according to a Vanderbilt University Medical Center study released today in Mayo Clinic Proceedings.
Canada's first 'state of the nation' report on children's physical literacy
The results from a large national research project led by the Healthy Active Living and Obesity Research Group (HALO) at the CHEO Research Institute shows that about two-thirds of Canadian children haven't achieved an acceptable level of physical literacy.
Many young adults lack financial literacy, economic stability, study finds
Many young people lack financial literacy and money-management skills, indicating an urgent need for educational programs to help them enter adulthood better equipped to handle their financial affairs, University of Illinois graduate student Gaurav Sinha found in a new study.
More Literacy News and Literacy Current Events

Best Science Podcasts 2019

We have hand picked the best science podcasts for 2019. Sit back and enjoy new science podcasts updated daily from your favorite science news services and scientists.
Now Playing: TED Radio Hour

Rethinking Anger
Anger is universal and complex: it can be quiet, festering, justified, vengeful, and destructive. This hour, TED speakers explore the many sides of anger, why we need it, and who's allowed to feel it. Guests include psychologists Ryan Martin and Russell Kolts, writer Soraya Chemaly, former talk radio host Lisa Fritsch, and business professor Dan Moshavi.
Now Playing: Science for the People

#537 Science Journalism, Hold the Hype
Everyone's seen a piece of science getting over-exaggerated in the media. Most people would be quick to blame journalists and big media for getting in wrong. In many cases, you'd be right. But there's other sources of hype in science journalism. and one of them can be found in the humble, and little-known press release. We're talking with Chris Chambers about doing science about science journalism, and where the hype creeps in. Related links: The association between exaggeration in health related science news and academic press releases: retrospective observational study Claims of causality in health news: a randomised trial This...