Personality, Income, and Compensatory Consumption: Low-Income Extraverts Spend More on Status

Psychological Science (2017)

Research documents the tendency for low-income individuals to spend more of their money on high-status products and services. In a novel data set of individuals who provided full access to their bank records over a twelve-month period, we offer empirical evidence showing that the link between low income and status spending depends upon the person: Extraverts, relative to introverts, spend more money on status when poor (as a percentage of their total spending and as a raw amount). These findings highlight the need to consider personality differences in theories of how low income affects spending behaviors, and offer a way in which personality research can deepen our understanding of who may be likely to engage in behaviors that perpetuate the conditions of financial hardship.

Full text paper here.

Long-Run Planners Live Longer

Under Review (with Sean Hundcrofte)

We find that individuals who plan for their financial futures live longer. We analyze data on a representative cohort of older people in the U.K., using the English Longitudinal Study of Aging (N=10,243, average age 64). Individual planning horizons are measured in Wave 1 (2002), and subsequent mortality observed over the following ten years. We find that ‘long-run planners’, those who state that they plan for their future and consider time horizons of more than a year in their consumption and savings behaviour, experience a cumulative mortality rate of 6%, compared to 10% otherwise.  A Cox proportional-hazards regression model of monthly mortality estimates that long-run planning is associated with a monthly hazard ratio of 0.79 (95% confidence interval, 0.68-0.92), controlling for demographics.  The relationship is robust to controlling for subjective life expectancy, mental wellbeing, cognitive functioning, and wealth. We replicate the findings in a U.S. sample using the Health and Retirement Survey (N=11,713), and present evidence that—in addition to displaying better health behaviours—long-run planners are less likely to experience financial distress, and less likely to experience adverse health, conditional on financial distress.

Available upon request.

Psychological Characteristics and Household Savings Behavior: The Importance of Accounting for Latent Heterogeneity

Journal of Economic Behavior and Organization

We employ a finite mixture model with maximum likelihood (ML) estimation to analyze latent heterogeneity in the relationship between psychological characteristics and household savings behavior. In a one-step ML estimation approach, we estimate a class membership model and a behavioral model of the classes jointly. Adopting this approach enables us to simultaneously assess how socio-demographic characteristics affect class membership probabilities and estimate class-specific regression coefficients, to test whether psychological characteristics predict savings behavior differently across latent classes. We apply this approach to a representative sample of UK households (n = 3,382) and identify two different latent classes: striving versus established households. We find that the relationship between psychological characteristics and savings behavior differs across these two classes, demonstrating the importance of accounting for latent heterogeneity when studying the drivers of savings behavior. Our results have implications for policymakers attempting to improve household savings behavior.

Full text paper here.