吃瓜爆料

鈥淭he more extroverted the population, the lower the savings rates tended to be,鈥 Jacob Hirsh says (photo by Sam Howzit via Flickr)

Are you a social butterfly? Then you may need to watch your savings

How personality can affect financial decision-making

Extroverted populations tend to have lower savings rates, says Jacob Hirsh, an assistant professor at the University of Toronto's Rotman School of Management and 吃瓜爆料 Mississauga鈥檚 Institute for Management and Innovation.

Hirsh鈥檚 findings, published in the July issue of grew out of his interest in how personality affects decision making.

In his recent study, he shifted his focus from studying individuals to looking at personality effects across entire populations.

鈥淢any of the choices that people make are influenced by their personality characteristics,鈥 Hirsh said. 鈥淚 started to think about how that affect might play out across larger groups.鈥

In his previous work, Hirsh has shown that more extroverted individuals tend to choose smaller but immediate rewards instead of larger but delayed ones.

鈥淓xtroverts are far more sensitive to rewards, which makes it harder for them to overcome their desire for immediate gratification,鈥 said Hirsh. 鈥淲hen making financial decisions, this can contribute to impulsive spending, higher credit card debts and reduced savings.鈥

If personality traits are related to individual saving behaviour, what would happen when entire populations differ in their personality characteristics? In the new paper, Hirsh examined this question using three different data sets.

In the first study, Hirsh found a correlation between United States extroversion levels and changes in the personal savings rate over time. During the same period that U.S. savings rates underwent a sharp decline, there was a corresponding increase in U.S. extroversion levels.

In a second study, Hirsh found that U.S. states with higher average extroversion levels tended to allocate more of their income toward immediate consumption, rather than setting money aside for saving.

A final study examined how the average extroversion levels of different countries were related to gross national savings as a percentage of GDP (gross domestic product).

鈥淎cross all three different analyses, the same pattern emerged,鈥 Hirsh said. 鈥淭he more extroverted the population, the lower the savings rates tended to be, even when controlling for population differences in age, life expectancy and wealth.鈥

Although the pattern was consistent across studies, Hirsh cautions that correlation does not guarantee causation.

鈥淲e can鈥檛 be certain about the direction of causality here,鈥 he said, 鈥渂ut to the extent that aggregate savings reflect individual choices, there is reason to think that personality traits can indeed have a causal influence.鈥

Overall, the findings suggest that personality psychology can contribute to an understanding of financial decision-making and economic behaviour.

鈥淲e know that personality traits have a powerful influence on an individual鈥檚 life outcomes,鈥 said Hirsh. 鈥淲e are only beginning to understand the broader social and economic consequences of these personality differences.鈥

 

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