January 3, 2012
Research Illuminates Credit Card Habit
It’s 2012, so kiss the money spent last month goodbye. But if any skeptics out there still need confirmation, here it is:
Academic research shows that compulsive purchases are more likely with credit cards, which put distance, in space and time, between the act of buying the item and paying for it.
“The pain of paying is somewhat dulled” by using plastic, Priya Raghubir at New York University and Joydeep Srivastava at the University of Maryland, show in their research paper titled, “Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior.”
If reducing your use of credit cards – even converting to a cash budget – is a New Year’s resolution, click “learn more” at the bottom of this post to see six previous articles on Squared Away about credit card behavior and psychology. They might help readers better understand a bad habit many of us share. …Learn More
November 22, 2011
Game Highlights Tough Choices for Poor
In May, Squared Away’s very first post was about an eye-opening “game” in which players take on the role of someone who is poor. The player is assigned a job and a paycheck. Every financial decision ricochets through the monthly budget, often in unexpected ways. Lives, children, and work choices are affected – poverty even creates unique ethical decisions.
The game, Spent, is so powerful, because its creators interviewed clients of Urban Ministries of Durham in North Carolina, which operates a food pantry, clothing closet, and homeless shelter. A local advertising firm, McKinney, designed the game in conjunction with Urban Ministries.
To play Spent, click here.
To read more, click here.Learn More
November 10, 2011
Are You Conscientious?
In a recent study of five personality traits, conscientiousness was the strongest determinant of an individual’s financial well-being.
Angela Lee Duckworth at the University of Pennsylvania and David Weir at the University of Michigan compared how people did on a personality test with their financial well-being after age 50. They examined the Big Five traits: conscientiousness, emotional stability, agreeableness, extroversion, and openness to experience.
Their finding about the power of conscientiousness adds to a spate of research combining psychology and economics to predict why people earn more, save more, or prepare for retirement. In another study, Australian researchers found that a child’s level of self-control, as early as age 3, can predict whether he or she will experience financial problems later in life.
So, what is conscientiousness and do you have it? I could tell you about it, but watch the video interview of Duckworth instead, on the University of Michigan Center for Retirement Research’s website.
Hint: is your desk clean?
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government.
September 29, 2011
Spenders Yield to ‘What the Hell Effect’
We all know the feeling. While mentally savoring the appetizers on the menu, our resolve to diet slips away. That same feeling has already hit by the time we slap our credit card down on the counter at Macy’s.
It’s so common that psychologists have named it the “what the hell effect.” Once poised at the edge, we might as well leap, right? But after the leap, people who usually try to maintain a certain level of self-control in their everyday lives feel awful.
Three marketing professors have now teased out the conditions that trigger this during the act of charging something on a credit card. They have found that people spend more money if they already have a balance on their credit card. But, oddly, a high-dollar credit limit on the card can mitigate that effect and help to restrain the cardholder’s spending.
Their findings are counterintuitive and a bit difficult to grasp. Here’s how Keith Wilcox, a marketing professor at Babson College in Boston, explained them in a recent interview with Squared Away: … Learn More
September 20, 2011
Fraud Victims Can Be Profiled
Which profile describes the most common victim of investment frauds like Bernie Madoff’s?
a. Tech-savvy young adult
b. Man over 50 earning high income
c. Elderly widow on fixed income
Widow, you say? That’s the stereotype, said Laura Carstensen, founder of Stanford University’s new Research Center on the Prevention of Financial Fraud.
“The old woman who’s demented and living on her own, and the guy who knocks on her door and sells her the policy – that does exist, but it doesn’t represent older people,” she said. Older people who have a history of long-standing relationships are often better at determining who they can trust, she said.
The correct answer is b: Man over 50 earning high income.
Fraudsters feed successful men’s egos by appealing to their investment savvy, enticing them to get into a deal others might not understand. By building up their egos, a fraudster ensures that the victim isn’t thinking clearly when he agrees to invest, said Doug Shadel, a member of the Stanford Center’s board who co-authored the AARP Foundation National Fraud Victim Study.Learn More
September 15, 2011
Colleges Help Students with Finances
With more college graduates piling up debts, an increasingly popular program on campus is trying to help them stay out of trouble.
More than 600 colleges are now enrolled in the National Endowment for Financial Education’s (NEFE) online program, so they can offer free assistance to four-year and community college students. CashCourse is a sort of private-label personal finance program: each academic institution puts its logo and school colors on NEFE’s online package of cash- and debt-management tools, tips, and workshops.
The University of California, the University of Texas, Purdue University, and State University of New York are among the schools posting NEFE’s materials to their websites or customizing financial programs to meet their students’ unique needs.
“We want every school to figure out what works for them,” said Ted Beck, NEFE’s chief executive.
Leticia Gradington, program director for Kansas University’s program, said it’s not unusual for students to have $20,000 to $30,000 in college loans and credit card debts.
“You’ve got students every day who are worrying about how they’re going to pay their debt back,” she said. If students can learn just how expensive the debt is before they borrow, “They pay more attention to it.” …Learn More
September 6, 2011
Journal to Spotlight Financial Behavior
The Journal of Marketing Research (JMR) will devote a special issue to interdisciplinary research on the hot topic of financial decision–making and behavior.
The issue is a smorgasbord of 15 articles on behavioral, marketing, economic, and psychological research on various financial activities, from borrowing money to establishing trust in financial transactions.
The November issue’s guest editor-in-chief, John G. Lynch, a psychologist who “wandered into marketing and consumer decision-making,” said the interdisciplinary approach advances everyone’s understanding of complex financial decisions.
“A given field understands a part of the answer. But we’re missing the larger whole,” he said. The special issue “would bring people together to read each other’s work and have an effect of causing more cross-fertilization.”
Squared Away plans to cover some JMR articles in a series of blog posts in coming weeks. Here’s a preview: …Learn More