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People Who Feel Powerful Save More Money, Finds Research From Stanford Graduate School of Business

People Who Feel Powerful Save More Money, Finds Research From Stanford Graduate School of Business

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05/31/2014

 
May 29, 2014 09:00 AM Eastern Daylight Time
STANFORD, Calif.--(BUSINESS WIRE)--Americans have never been particularly good at saving money. In 2013, for example, the Organization for Economic Cooperation and Development found that Americans savedon average only 4.5% of their household income, while Europeans saved nearly 8% and Australians more than11%. But according to a new study by Stanford Graduate School of Business (GSB) researchers, there’s a wayto change that: simply make people feel more powerful.
“When it comes to managing finances, it’s easyfor people to feel overwhelmed and out ofcontrol”
“When it comes to managing finances, it’s easy for people to feel overwhelmed and out of control,” says PhDstudent Emily Garbinsky. “How to help consumers regain control and make better decisions with their moneyis the focus of my work.” To do so, she relies on the strong relationship between money and power,investigating how feelings of power critically influence financial decision-making. She demonstrates, incollaboration with Stanford GSB professor Jennifer Aaker and Anne-Kathrin Klesse of Tilburg University in theNetherlands, that making consumers feel more powerful increases their motivation to save.Power is an especially intriguing and practical factor to examine in this context, the authors argue, because thesense of how powerful one feels is malleable. All people — even those generally perceived as more powerfulthan others — experience shifting feelings of power and powerlessness during the day; we might feel powerfulwhen interviewing a job candidate or giving advice, for example, but powerless when defending a thesis or applying for a job. In the paper “Money in the Bank: Feeling Powerful Increases Saving,” the authorsmanipulated these subjective feelings of power using a variety of well-established methods, including havingparticipants recall a situation in which they felt powerful and having them sit in a chair that is higher thansomeone else’s.Through a series of five experiments, the authors showed that feeling powerful — defined as having controlover valuable resources — is a pleasant state that individuals are motivated to maintain. And since money isthe most coveted resource we have, they argue that individuals who feel powerful save money to secure their feelings of power. Indeed, they found that if power were guaranteed to be secure for life — or if power could beleveraged through another resource, such as knowledge — it did not help fill the piggy bank. The impulse tosave was observed only when saving money was considered a means toward maintaining power.
People Who Feel Powerful Save More Money, Finds Research FromStanford Graduate School of Business
 
In the first experiment, the researchers divided the subjects — 140 Dutch university students — into threegroups: one assigned to write about a time they felt powerful, one to write about a time they felt powerless, andone with no writing prompt. Then they were told to imagine they had just received 100 euros, and asked howmuch they would put into a savings account. They also had to report how happy they felt at that particular moment. Though there was no significant difference in the level of happiness reported by the three groups, thestudents who had written about feeling powerful clearly indicated a greater willingness to save their money;their mean rate of savings was €71.20, compared with €48.73 for those who wrote about feeling powerless,and €51.69 among the participants in the control group.The second one measured the effect of feeling powerful on actual, rather than imagined, savings behavior.Seventy-six Stanford students were offered $10 each to report to a lab under the assumption that they wouldprovide feedback about how the lab operates. Each was individually ushered into a room and asked to siteither on a tall chair or a low ottoman; the interviewer took whichever seat was unoccupied. They answered aseries of questions about the lab, and were then handed a sheet of paper indicating a new payment policy thatgave them the option of either collecting their money or depositing it into a high-interest savings account. Thenthey completed a questionnaire on which they had to rate, among other things, how powerful they felt duringthe interview. Those who sat in the taller chair reported greater feelings of power than those on the ottoman. And the powerful agreed to save considerably more than the powerless: an average of $6.94 of the $10,compared with $4.49 — even though, as Garbinsky says, “the tall chair is a very subtle manipulation of power,and it doesn’t work for everyone.”In the third study, just over 200 participants from the crowdsourcing Internet site Mechanical Turk were told toimagine a situation in which they were either the leader or a member of a group project. When they were givenno stipulations on saving or told they were saving for “the future,” the powerful saved considerably more (42%and 34%, respectively) than the powerless (13% and 18%). But when the savings supposedly went towardbuying a BMW, a well-established status symbol, those without power agreed to save 23% of their income,while those with power agreed to save 13%. The results corroborate previous research showing that“powerless individuals are more attuned to what others think, and one way they can acquire power is byengaging in compensatory consumption,” the study says.In other experiments, those made to feel powerful, by imagining themselves as bosses, vowed to save more of their monthly income than those made to feel powerless, by imagining themselves as employees. However,those guaranteed a job for life agreed to save roughly the same share of their income — about 20% — whether they felt powerful or powerless. “When one’s sense of power is secure and saving money no longer enablesindividuals to maintain feelings of power, the effect of power on saving disappears,” the researchers wrote.The differences between those feeling powerful and those feeling powerless also disappeared when theresearchers explicitly linked another resource to maintaining power. They did so by having some studyparticipants read a fictitious essay called “Knowledge Is Power,” asserting that most people consider knowledge the key to success; another group read nothing. “In situations where money is no longer tied topower, those who feel powerful and those who feel powerless do not differ in the amount of money they arewilling to save,” they write.The researchers hope that their findings, scheduled for publication in the
Journal of Consumer Research
 inOctober, will have direct implications for America’s savings rate. By drawing on the study, banks, governmentagencies, and employers can boost participation in existing programs designed to help Americans sock awaycash, such as automatic enrollment savings plans, and ideally develop new interventions. “Most of thecharacteristics that make you more or less likely to save — things like education, upbringing, and income level— are not very changeable,” says Klesse. “We show that very subtle shifts in feelings of power can have quitean impact on saving. This is very important because it’s something that’s easy to change.”View the research paper:

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