the role of savings goals in the prediction of personal spending johanna peetz and roger buehler...

The Role of Savings Goals in the

Prediction of Personal Spending

Johanna Peetz and Roger Buehler

Wilfrid Laurier University

Peetz & Buehler (in press), PSPB

Spending predictions

Past research on spending Spending behavior

e.g., Furnham, 1999; Kidwell et al., 2003; Lee & Ariely, 2006; Vohs & Faber, 2007

Corporate forecastse.g., Flyvberg et al., 2009; Schwartz & Cohen, 1995

Past research on predictions Predictions are often optimistically biased

e.g., Armor & Taylor, 1998; Dunning, 2007

Time spent on projects is underestimated →”planning fallacy” e.g., Buehler et al., 1994, 2002; Kahneman & Tversky, 1979

Goals and Predictions

Two theories of goals affecting predictions Motivated reasoning (Kunda, 1990) Desirability bias (Krizan & Windschitl, 2007)

Goals affecting behavior? Increased commitment (Locke & Latham, 1990) Corresponding plans (Gollwitzer, 1999)

Goals and intentions affect predictions more than behavior (Buehler et al., 1997; Epley & Dunning, 2000, 2006)

e.g., donating blood (Koehler & Poon, 2006)

Savings goals

Preference to minimize expenses and keep expenditures under control

Savings goals should have a greater impact on predicted than actual spending

Self-control (Faber & Vohs, 2004; Rabinovich & Webley, 2007)

Multiple competing goals

Present Research

HYPOTHESES

People underestimate personal spending

Savings goals contribute to this bias The more people want to save the more they predict to

reduce their spending But wanting to save money might not translate into behavior

Study 1 – Is there a bias?

“all expenses included except large sums that would occur only once a month, such as rent”

Predicted spending in the next week

Recalled spending of past week

Recalled spending of past week: Actual Spending


TIME 1

TIME 2

31 undergraduate students

Study 1 – Is there a bias?

* **

0

20

40

60

80

100

120

140

Spending in $

Past (Week 1)

Predicted(Week 2)

Actual(Week 2)

Predicted(Week 3)

Study 2 – The Role of Savings Goals

Rated saving goals and other money attitudes

Recalled spending of past week

TIME 1

TIME 2



Every night, listed spending of past day: Σ7 days = Actual Spending

DIARY


**

0

20

40

60

80

100

120

140

Predicted Actual Remembered

Spending in $


-.38*

Predicted Spending

-.07“Saving money is important to me”

Actual Spending

* p < .05

M = 48 days later

Study 3 – Ruling out Demand

Rated savings goals and other money attitudes

TIME 1

TIME 2



Goal reminder conditionRated savings goals

No reminder condition--Vs.

Study 3 – Ruling out Demand

-.37*

-.32*

Predicted Spending

--Time 2 Saving goals

-.40*Time 1 Saving goals

Goal reminder condition

No reminder condition

* p < .05

Average predictions did not differ significantly by condition

Study 4 - Manipulating Savings Goals


People who spend money are generally more successful in life.

e.g., Spending money is just one indicator of a spontaneous approach to life, which is linked to career success.

People who save money are generally more successful in life.

e.g., Saving money is just one indicator of a future oriented approach to life, which is linked to career success.

Strong Saving Goal Weak Saving GoalVs.

Recalled actual spending in the week

TIME 1

TIME 2


Study 4 - Manipulating Savings Goals

0

20

40

60

80

100

120

140

160

180

200

StrongSaving Goal

WeakSaving Goal

Spending in $

**

Rated the reason for their prediction (7-point scales):Thoughts about saving goalsThoughts about feelings about the friend

Instances outside savings goals:

Study 5 - Spending money on friends

Identified a friend’s birthday coming up in the next 2 month

TIME 1


Predicted spending for this birthday

Recalled usual spending for birthdaysRecalled past spending for this friend’s birthday

*

0

10

20

30

40

50

60

Birthday Spending

$

Usual

PastPredicted

*



Thoughts about saving goals

-. 50*

1

2

3

4

5

6

7

Saving goals Feelings forfriend

Reason for Prediction

1

2

3

4

5

6

7

Saving goals Feelings for friend

Spending Prediction

Thoughts about saving goals

-.15

Thoughts about feelings for friend

.46*

**



Compare to a separately collected sample predicting weekly spending:

Conclusions and Implications

People routinely underestimate future spending Contributes to literature on money vs. time accounting

Leclerc et al., 1995; Okada & Hoch, 2004; Soman, 2001 “Budget fallacy” similar to “Planning fallacy”

The goal to save money amplifies the optimistic spending bias

Poor predictions may lead to poor budgeting decisions

Ironically, those individuals who are most motivated to improve their finances, may generate the worst financial plans!

Future directions and current studies

Cognitive mechanisms Knowing items (i.e., “unpacking”) Knowing prices

Construal level

Different prediction objects Monthly and daily time periods Event spending

Thank you

Questions and Comments?

the role of savings goals in the prediction of personal spending johanna peetz and roger buehler...

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