The association between saving disposition and financial distress: A genetically informed approach

Saving disposition, the tendency to save rather than consume, has been found to be associated with economic outcomes. People lacking the disposition to save are more likely to experience financial distress. This association could be driven by other economic factors, behavioral traits, or even genetic effects. Using a sample of 3,920 American twins, we develop scales to measure saving disposition and financial distress. We find genetic influences on both traits, but also a large effect of the rearing family environment on saving disposition. We estimate that 44% of the covariance between the two traits is due to genetic effects. Saving disposition remains strongly associated with lower financial distress, even after controlling for family income, cognitive ability, and personality traits. The association persists within families and monozygotic twin pairs; the twin who saves more tends to be the twin who experiences less financial distress. This result suggest that there is a direct association between saving disposition and financial distress, although the direction of causation remains unclear.     

Teaching children to save: What is the best strategy for lifetime savings?

We study the effect of alternative parental teaching strategies on the propensity to save and the amount saved during adulthood. Using a panel dataset from the Dutch DNB Household Survey we find that parental teaching to save increases the likelihood that an adult will save by 16%, and the saving amount by about 30%. The best strategy involves a combination of different methods (giving pocket money, controlling money usage, and giving advice about saving and budgeting). The effect of parental financial socialization is persistent with age, but decays at elder age for the propensity to save.     

Institutional determinants of saving: implications for low-income households and public policy

There is an emerging policy and academic discussion, supported by a growing body of empirical evidence, regarding the potentially positive effects of asset accumulation in low-income households. However, at least two questions precede this discussion: Can the poor save? And, if so, how can programs and policies promote saving by the poor? This paper begins to address these questions by examining the effects of institutional variables on saving behavior. We posit that four institutional variables—institutionalized saving mechanisms, targeted financial education, attractive saving incentives, and facilitation—promote saving. However, low-income households are substantially less likely to have access to these institutions, a phenomenon that may help explain their below-average saving rates. This discussion has implications, especially as policy-makers consider various proposals to increase the saving rates of low- and middle-income Americans.     

The relationship of materialism to spending tendencies, saving, and debt

This study is a response to the Richins and Rudmin [J. Econ. Psychol. 15 (1994) 217–231] call for work examining the relationship between materialism and aspects of economic psychology. The research was designed to investigate how people with differing levels of materialism vary in their propensity to spend and/or save and their attitudes and behaviors toward borrowing money. The results indicate that highly materialistic people are more likely to view themselves as spenders and have more favorable attitudes toward borrowing. These differences were evident in behavioral measures, although the differences were strongest for behaviors related to debt rather than saving. The implications of these findings for establishing a more comprehensive view of materialism in modern society are discussed.     

The ant and the grasshopper revisited: The present psychological benefits of saving and future oriented financial behaviors

This study examines the impact of saving and future-oriented financial behaviors on young adults’ well-being. Using two-timed longitudinal data (N = 748) collected both prior to and during the economic crisis, we tested and confirmed a psychological process model (i.e., financial attitude → behavioral intention → actual behavior → well-being), one that included parental norms, perceived behavioral control and financial planning horizon as antecedent factors. Our findings indicate that the more positive a young adult’s attitude toward financial behaviors, and the greater his/her perception of parental expectations, then the stronger will be this young adult’s intention to perform such behaviors. We found that behavioral intention at Time 1 contributed to actual financial behaviors at Time 2, which in turn was positively related to a young adult’s present sense of well-being. We also found that perceived behavioral control and financial planning horizon influenced both behavioral intention and actual behavior. Although perceived impact of the economic crisis moderated the link between past and present well-being, it did not affect the hierarchical flow of the model. We discuss the theoretical and practical implications of our study pertaining to consumer financial education.     

A self-interest analysis of justice and tax compliance: How distributive justice moderates the effect of outcome favorability

Compliance with tax authorities has been studied mainly in the fields of economics and psychology. The focus has respectively been on self-interest motives and justice concerns in tax compliance. We argue that both concerns are less divergent than is often thought. Specifically, we studied the moderating role of distributive justice on the relationship between outcome favorability and tax compliance in two cross-sectional surveys. It is generally believed that favorable outcomes increase compliance because they decrease what can be gained from non-compliance. The present research addresses the role of distributive justice in this process. Since people believe that distributive fairness guarantees their long-term outcomes, favorable present outcomes now imply favorable future outcomes and unfavorable present outcomes now imply unfavorable future outcomes. Thus, we expected fair outcomes to result in a strong relationship between outcome favorability and compliance. On the basis that unfair outcomes are believed to result from chance, outcome favorability should have a weaker relationship with compliance when outcomes are unfair. Even when controlling for other variables, this prediction was supported by both studies.     

Retirement plans, personal saving, and saving adequacy

This Issue Brief addresses three questions raised by recent trends in personal saving: How are national savings measured and what is the meaning of the trends in measured personal saving rates, given what is included and what is not included in those measures? What is the effect of retirement saving programs--in particular, 401(k) plans and individual retirement accounts (IRAs)--on personal saving levels? What are the implications of existing saving behavior for the retirement income security of today's workers? The National Income and Product Accounts (NIPA), the most commonly referenced gauge of personal saving, is a widely misunderstood measure. One could argue that a complete measure of saving would include increases in wealth through capital gains, but NIPA does not factor accrued and realized capital gains on stocks and other assets into the saving rate. By one measure, accounting for capital gains results in an aggregate personal saving rate of 33 percent--more than double the rate of four decades ago. A major policy question is the impact of tax-qualified retirement saving plans (i.e., IRAs and 401(k) plans) on personal saving rates. Empirical analysis of this issue is extremely challenging and findings have been contradictory. These programs now represent an enormous store of retirement-earmarked wealth in tax-deferred vehicles: Combined, such tax-deferred retirement accounts currently have assets of about $4 trillion. Ninety percent of IRA contributions are now the result of "rollovers" as employees leave employer plans, like 401(k) plans. While leakage from the system remains a challenge, the majority of the assets in the system can be expected to be available to fund workers' retirements. One could argue that, from a retirement income security perspective, workers in general are better off because IRA and 401(k) programs exist. Surely, many of the dollars in these programs would have been saved even without the programs; but they would not necessarily have been earmarked for retirement and been available to fund retirement expenses. As rollovers become larger, this "partnership" of employment-based qualified plans and IRAs will grow even more important. The evidence indicates that many groups of American workers appear unlikely to be able to afford a retirement that maintains their current lifestyle (at least not without working more years than currently planned). Consensus does not exist on how many workers are at risk or the typical magnitude of their retirement saving shortfall. There is a consensus, however, that a substantial number of individuals are at risk. This is not surprising--despite the fact that the 70 percent of workers are saving for retirement--since relatively few workers know how much it is that they need to accumulate to fund their retirement.     

Money matters: An exploratory study of the socio-cultural context of consumption, saving, and investment patterns

This study focuses on 36 professional South Asian (Indian) families in a metropolitan city in Canada in order to understand motives for financial behavior. In accordance with the Hindu world view, Indians view wealth acquisition as necessary for the natural progression of an individual's life and take a long view of time when it comes to investment decisions. Their primary purpose is to invest money in order to provide for their children's education. Their cultural roots allow them to take a long-term view and makes them more risk tolerant. Although these families take economic criteria into account, such criteria alone do not fully explain their consumption, saving, and investment patterns. It would appear that their need for saving determines their consumption, not the other way around. To understand their financial behavior, one has to identify the cultural worlds in which Indians live. The study highlights the importance of understanding the socio-cultural context of decisions that may appear to be purely economic decisions at first sight.     

The saving and spending habits of young people

Over 250 British children and adolescents completed a questionnaire on their sources of personal income (pocket money/allowance, part-time job, gifts), as well as how much they had saved, where it was stored, and for what purpose it was intended. Particular attention was paid to bank accounts. The participants also responded to various attitude statements about money and the economic situation in general. Results showed numerous sex and age, but few class differences. Males received more pocket money and presents than females, and older children more than younger children. Over 80% of the children claimed their parents would not give them extra money if they had spent it all. Regressional analyses showed that the best predictors of regularity of saving, as well as the proportion of money saved, were the more money received; the less money spent in the previous week and total amount of money saved in the previous week. The results are discussed in terms of the limited empirical literature on children's pocket money allowances, particularly with respect to demographic differences. Limitations of the methodology are also reported.     

Differences in drinking expectancies and motives for regular education and special education high school students with emotional/behavioral disorders

Alcohol expectancies and drinking motives were compared for regular education students (n=159) and students with emotional/behavioral disorders (EBD) receiving special education services (n=51). Differences existed between groups with respect to expected negative social consequences and emotional and physical outcomes associated with drinking. Across groups, drinkers reported more positive alcohol expectancies than non-drinkers, while non-drinkers reported more negative alcohol expectancies than drinkers. Differences also existed between the regular education and EBD students who drank with respect to coping, conformity, and social motives. Accounting for sample sizes differences, the relationship between alcohol use and negative physical effect was stronger for regular education students, while the relationship between alcohol use and conformity motives was stronger for the EBD group.     

Are Haligonians Ricardian? A survey of households' saving response to the government's budget deficits

The Ricardian Equivalence Theory claims that an increase in government's budget deficit is exactly offset by an equivalent increase in current private saving, that people anticipate higher taxes in the future as a result of the present deficit, and save more now. This study surveys two random samples of households in Halifax, Canada, to investigate if they actually behave this way. The result of the survey suggests that people pay little attention to government's budget deficits in deciding their own savings. Economists tend to disregard results of questionnaire surveys on the ground that people may not be conscious of their decision process. Drawing from the psychology literature, this article argues that this objection does not apply to the key questions and responses in this survey.     

Organizational sensegiving: Indicators and nonprofit signaling

Resource acquisition depends upon the agreement between an organization's sense of identity and the perceptions of organizational identity held by resource providers. To smooth the flow of resources and buffer against potential issues, organizations seek to manage external perceptions and, to the extent possible, control their organizational identity. Using exploratory factor analysis, we examine the data from 300 GuideStar profiles to develop a sense of how nonprofit organizations “give sense” to resource providers and attempt to manage their organizational identity. We find evidence of three sensegiving strategies. We then use a seemingly unrelated regression model to examine the relationship between these strategies and revenue outcomes, finding evidence that (a) nonprofit organizations demonstrate intentional sensegiving, and (b) different sensegiving approaches are related to different income streams.     

Do institutions really matter for saving among low-income households? A comparative approach

This study aims to examine the extent to which competing theories explain saving of low-income households in Individual Development Accounts (IDAs). Competing theories include the individual-oriented perspective, a social stratification perspective, and institutional saving theory. We use American Dream Demonstration (ADD) data collected at the Tulsa IDA program. Compared with the individual perspective and the social stratification perspective, institutional features explain a large part of the variance in saving outcomes measured by average monthly net deposit (AMND) and deposit frequency. Findings suggest that institutional structures encouraging low-income households to save may contribute to more inclusive asset-based policy.     

The psychological impact of unemployment and joblessness

Economists have identified two principal adverse effects of unemployment. One is the output foregone that could have been produced if unemployed workers had been productively employed. The second is the psychological damage suffered by unemployed workers and their families. Psychologists have offered theories to explain how experiences such as Joblessness may lead to a deterioration in mental health. They also have designed and validated survey instruments capable of measuring various aspects of emotional health. Unfortunately, their efforts to document the psychological impact of unemployment have been plagued by data limitations, while economists largely have ignored this task. The purpose of this study is three-fold. First, we discuss why unemployment and Joblessness are likely to influence an individual's perception of personal efficacy, locus of control, and hence psychological well-being. Second, we discuss and critique existing efforts to examine the relationship between labor force experiences and locus of control. Third, we investigate the relationship between Joblessness and its component parts—unemployment and dropping out of the labor force—on personal locus of control, using observations from the NLSY and an alternative methodological framework. The NLSY is a longitudinal data set that contains detailed information on the personal characteristics of individuals in the sample, their labor force experiences and a specific personal locus of control. In discussing the results we also attempt to shed some new light on the debate between Clark and Summers (1979) and Flinn and Heckman (1982, 1983) over the question of whether being out of the labor force and being unemployed should be thought of as distinct states. We add further insight into this issue by examining whether there are psychological differences, as measured by locus of control, between otherwise comparable members of these two groups. Finally, we reconsider the Ellwood and Ruhm exchange over whether joblessness and unemployment lead to “psychological” scarring. We find that labor force experiences fail to influence personal locus of control for male youths. There is evidence, however, that perception of personal efficacy is altered by joblessness among young women. As the duration of a current unemployment spell lengthens, the likelihood of holding beliefs of personal efficacy decline for young women. There is also some evidence of scarring among women. For females who in the past have spent time both unemployed and out of the labor force, the greater the duration of their joblessness the more likely is a reduction in feelings of personal efficacy and more aggravated one's self-perception of helplessness. We also offer psychological evidence on the relative emotional well-being of the unemployed and labor force drop outs that largely supports the position of Clark and Summers that these conditions are largely indistinguishable.     

ECONOMICS COURSEWORK AND LONG‐TERM BEHAVIOR AND EXPERIENCES OF COLLEGE GRADUATES IN LABOR MARKETS AND PERSONAL FINANCE

Using survey data from over 2,000 students who attended one of four large public universities in 1976, 1986, or 1996, we investigate the relationship between taking more coursework in economics, or choosing economics as an undergraduate major, and a wide range of later decisions and outcomes in labor markets and personal finance, many of which have not been analyzed in earlier research. Generally, economics coursework and majoring in economics are significantly related to higher levels of earnings, home equity, and savings. They are also associated with working more hours and negatively related to completing graduate degrees (except the MBA). Among graduates with positive savings, those with more economics coursework invest more in individual stocks and money market accounts, and are more likely to have employer‐provided life insurance. They have fewer credit cards, which are more often paid in full each month. Most of these findings also hold for graduates who majored in business, but on average economics majors worked more hours and earned more than business majors, were more likely to have been self‐employed, and expected to retire at an older age. Business majors were more likely to have experienced a layoff, and were even less likely than economics majors to complete graduate degrees (except the MBA). Economics majors expected to save even more than business majors by retirement, and viewed short‐term and precautionary motives for saving as more important. Finally, our results suggest that exposure to economics through course‐taking is more important for later outcomes than actual performance in those courses. (JEL A22, J3, D12)     

Social Capital, Savings, and Educational Performance of Orphaned Adolescents in Sub-Saharan Africa

We examine the impact of social capital on savings and educational performance of orphaned adolescents participating in a family-level economic strengthening program in Uganda. Findings indicate that if given the opportunity, poor families in Uganda will use financial institutions to save for the education of their adolescent youth. Moreover, although the results are mixed, overall, adolescents with higher levels of social capital and social support, including participation in youth groups, are likely to report better saving performance compared to their counterparts with lower levels of social capital and social support. The results point to: (1) the role for family-economic strengthening programs specifically focused on improving the educational outcomes of orphaned adolescents in sub-Saharan Africa, and (2) the need for adolescents to be encouraged to participate in youth groups since these groups seem to offer the much needed supportive informal institutional structure for positive adolescent outcomes.     

Competing Priorities: Partner-Specific Relationship Characteristics and Motives for Condom Use Among At-Risk Young Adults

Condoms protect against human immunodeficiency virus (HIV)/sexually transmitted infections (STIs) and unintended pregnancy and are essential to sexual health efforts targeting young adults, who are disproportionately affected by both outcomes. Understanding condom use motives is critical to increasing condom use. Research in this area is limited, particularly regarding the roles of partners and relationship factors. Using a longitudinal sample of 441 young adults and 684 reported partnerships we examined associations between relationship factors and condom use motives (pregnancy prevention, disease prevention, or dual protection). Simultaneous multilevel models identified variables associated with motives; level-specific models identified the levels (individual, partnership, time) variables impacted motives. Participants reported choosing condoms for pregnancy prevention, disease prevention, and dual protection in 51%, 17%, and 33% of partnerships, respectively. Partner-specific factors varied, to a differing degree, across the three levels. Seven variables (duration, condom self-efficacy, commitment, sexual decision-making, power, and vulnerability to harm [HIV/STIs] and pregnancy) distinguished condom use motives. The level of this association varied but was most pronounced at the partner and individual levels. Researchers and practitioners should consider the impact of both individual- and partner-level factors on condom use motives, in both research and sexual health programs.     

Region‐Urbanicity Differences in Locus of Control: Social Disadvantage,Structure, or Cultural Exceptionalism?

People with internal rather than external locus of control experience better outcomes in multiple domains. Previous studies on spatial differences in control within America only focused on the South, relied on aggregate level data or historical evidence, or did not account for other confounding regional distinctions (such as variation in urbanicity). Using data from the National Education Longitudinal Study, we find differences in adolescents' loci of control depending on their region and urbanicity are largely attributable to differences in their social background, and only minimally to structural differences (i.e., differences in the qualities of adolescents' schools). Differences that persist net of differences across adolescents and their schools suggest the less internal control of rural Southern adolescents, and the more internal control of rural and urban Northeastern adolescents, may be due to cultural distinctions in those areas. Results indicate region is more closely associated than urbanicity with differences in locus of control, with Western and Northeastern cultures seemingly fostering more internal control than Midwestern and Southern cultures. These findings contribute to research on spatial variation in a variety of psychological traits.     

What Happens to Defined Contribution Accounts When Labor Markets and Financial Markets Move Together?

The relationship among earnings, savings, and retirement is well known; however, the linkage between labor market outcomes and financial market performance is generally unacknowledged. We examine the implications of the link between labor markets and financial markets for workers who save money in individual retirement accounts. Specifically, differences in labor market outcomes across groups may imply differences in the timing of investments, which may reduce savings over time for these groups compared to their counterparts. Using monthly data from the Current Population Survey (1979–2002), we generate hypothetical investment portfolios using stock and bond indices. We exploit differences across demographic groups in unemployment and wage growth and use these differences to examine each group's investment outcomes. We then disaggregate the total effects into short-term and long-term components. We find some evidence of short-term market timing effects on investment, but we find much larger long-term effects for some groups. Our findings suggest that, for many people, the retirement savings losses associated with the timing of markets are similar to the costs of annuitizing savings upon retirement. The differences are especially pronounced by education and gender.     

Restoring reputations in times of crisis: An experimental study of the Situational Crisis Communication Theory and the moderating effects of locus of control

This study attempts to provide empirical evidence for Coombs’ (2007) Situational Crisis Communication Theory (SCCT), which provides guidelines for matching crisis response strategies to crisis types to best restore organizational reputations in times of crisis. The impact of crisis type and crisis response strategies on perceptions of corporate reputation is measured for 316 consumers participating in a 3 (crisis type: victim crisis, accidental crisis, preventable crisis) × 3 (crisis response: deny strategy, diminish strategy, rebuild strategy) between-subjects experimental design. The results show that preventable crises have the most negative effects on organizational reputation and that the rebuild strategy leads to the most positive reputational restoration. Moreover, the more severe people judge a crisis to be, the more negative are their perceptions of the organization's reputation. The interaction effect between crisis type and crisis response strategies on corporate reputation is not significant. However, a person's locus of control has a moderating impact on the relationship between crisis response strategy and organizational reputation. Specifically, the results show that people with an external locus of control prefer the use of deny strategies more than people with an internal locus of control.