Financial responsibility means managing money in a relatively sensible way by minimizing unnecessary or unnecessary expenditure. But according to new research from the University of Notre Dame, people think they are more financially responsible than they actually are. Even when people consistently spend their money in excess, they still believe they are managing their money responsibly.
“People generally have a positive illusion that they are financially responsible because it makes them feel good about themselves,” says Garbinsky, who also published a recent study on financial infidelity.
Garbinsky, along with Nicole Mead of York University and Daniel Gregg of the University of New England in Australia, developed an intervention that combats this self-enhancing bias by helping people understand how often they spend money unnecessarily. This realization, in turn, motivates them to increase their self-image of financial responsibility by increasing their savings.
The “excess spender” intervention required participants to answer a short five-question survey before making a savings decision. The questions focused on their past unnecessary buying habits, such as eating out instead of cooking at home. Importantly, the participants responded to these five questions using a continuous scale anchored by a relatively low frequency (1 equals once a year or less) or a relatively high frequency (7 equals 12+ times a year). years). The researchers designed the scale anchors so that most of the participants' responses would fall in the upper range, with higher scores indicating higher frequencies of past superfluous spending.
It was crucial to ensure that the majority of answers fell in the upper range, as previous research has shown that people use their placement on rating scales to draw conclusions about themselves (in this case that they are not as financially responsible as they thought they were). This realization then encourages them to strengthen their sense of financial responsibility by saving.
In addition to testing the effectiveness of this intervention in students at both Notre Dame and York Universities and on several online panels, the team conducted two studies with chronically deprived coffee growers in rural Uganda – one study examined the intervention's ability to the savings of earned income over time, while the other study examined the intervention's ability to influence the savings of a financial windfall. “The latter is especially important in developing countries,” explains Garbinsky, “as an emerging policy option has been to shock families struggling with large money transfers”.
Collectively, this work shows that people see their financial responsibility through rose-colored glasses, which can undermine their financial well-being, Garbinsky said. “People all over the world aren't saving enough money, and we suggest that one of the reasons they aren't saving enough is because they mistakenly believe they are financially responsible. If so, deflating this inflated self-image can increase savings, as people should be motivated to restore the perception of financial responsibility. “
