A Joint Account With My Future Self
🍻 Psych - 327/500
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What is it?
This paper examines how consumers adjust their current spending based on expected changes to their future income.
The research explores whether people spend less when they know their income will decrease & spend more when expecting an income increase, as economic theory suggests.
Surprisingly, the findings reveal an asymmetry: while consumers tend to adjust to future income decreases, they are less likely to increase spending in anticipation of a future income increase.
Major findings:
Asymmetrical spending adjustment: Consumers reduce spending when expecting an income decrease, but don't increase spending as much when expecting an income increase.
Self-continuity explains the asymmetry: People feel less connected to their future selves when expecting a raise, leading them to treat their present and future income as separate, unrelated entities.
Mental accounting plays a role: This reduced self-continuity translates into separate "mental accounts" for present and future income, inhibiting the transfer of funds between them and hindering spending adjustments.
Implications for hyperopia and regret: Failing to adjust to future income increases can lead consumers to be overly cautious, potentially missing out on valuable present consumption opportunities.
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What do I need to know:
It highlights the potential for interventions to improve financial well-being by enhancing consumers' connection to their future selves.
Future income changes influence spending, but not always as expected: Consumers are more likely to adapt to negative changes than positive ones, highlighting the role of psychological factors.
Self-continuity is crucial for financial decisions: Feeling connected to our future selves impacts how we perceive and manage our finances.
Mental accounting shapes spending: How we mentally categorize our money influences our willingness to spend and save.
Source:
Of course I have a particular bias towards papers that talk about consumer psychology given my marketing background, but I really enjoyed discovering this paper about consumers' personal spending projections. It is something very common in everyday decisions and especially the 'major findings' section reveals counterintuitive results that are also useful as consumers.