When was the last time you went to the store and bought only the items on your list—no gum, no extra accessories, no new movies? Have you thought about how much money you have saved for retirement, or a rainy day? Would you rather live in the moment or prepare for the future?
Despite our best intentions, most of us, at some time or another, make short-sighted financial decisions. Indeed, we often add impulse purchases to our carts, put things on a credit card that we can’t afford, and fail to save enough for retirement or other unforeseen emergencies.
In our research at Washington State University’s Carson College of Business, we have found that personality traits play a meaningful role in financial decision making, from saving money to repaying debts to impulse purchasing. One personality trait that we have found to be linked with financial responsibility is a person’s time orientation.
People with a future time orientation base their decisions on the future consequences of their actions while people with a present orientation base their decisions on the immediate consequences of their actions, often without regard for the future consequences of one’s actions.
In our research, we have found that future orientation is linked with a lower level of impulse buying and a higher importance placed on paying off credit card debt. In one study, we asked participants a series of questions in which they had to choose between a smaller reward today versus a larger reward in the future. Participants also were asked to allocate $900 in any manner they wished across four categories. Two of the choices were focused on long-term benefits (savings), while the other two led to short-term rewards (vacation). In both situations, participants concerned with immediate consequences chose immediate rewards over longer-term gains.
Impulsive buying has been estimated to account for more than $4 billion in retail store sales. In fact, in a recent CreditCards.com survey, 75 percent of Americans said they had made an impulse purchase, and half regretted it. The survey also showed that emotions play a large role in purchasing habits.
Often, we struggle most with impulse purchasing when we are either emotionally drained from a long day or excited and overstimulated.
At the broadest level, self-control is the ability to regulate one’s behavior to increase one’s long-term well-being. To better understand self-control, previous researchers have developed the “strength model” of self-control, which recognizes that self-control is both a trait and a state.
Some people show high self-control across a variety of situations, while others exhibit lower self-control across many situations, reflecting the trait of self-control. Self-control also can vary throughout the day, week, or month based on a variety of factors, including stress, and the need to regulate one’s thoughts, emotions, and behavior, reflecting state self-control. While these factors can lead to a temporary breakdown in self-control, the state of self-control also shows much promise. Like a muscle, it can be strengthened.
In one study, we found that self-control can be strengthened through cognitive and physical exercises.
By building self-control, participants were able to limit and control their impulsive buying urges. Our research, accompanied by previous findings, indicates that self-control can be gradually increased over time using multiple techniques that involve extended concentration, regulating one’s thoughts or actions, and overriding habitual responses.Such self-control building can involve physical discipline, such as following a regular exercise schedule.
Cognitive exercises can include maintaining a food diary or playing brain games that require you to override your default response, such as the Stroop color naming task, which as an example might involve calling out the word blue when the word red appears in blue font.
It may seem like people who have less self-control or focus more on immediate rewards will be doomed to financial struggles, but our research suggests possible interventions to engage those who struggle with financial decision making.
Developing financial savings plans or debt repayment plans that focus on immediate rewards may, for example, encourage present-orientated people to develop better financial habits. Many experts also recommend automatically depositing a portion of one’s pay check into a savings account, setting up automatic payments for bill and loans, and using only pre-paid or debit cards. Either way, these “tricks of the self-control trade” can help people increase their long-term well-being.
Jeff Joireman is an associate professor of marketing at Washington State University’s Carson College of Business.
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