Special Session Summary Self Control and Personal Financial Management


Sue O’Curry (2003) ,"Special Session Summary Self Control and Personal Financial Management", in NA - Advances in Consumer Research Volume 30, eds. Punam Anand Keller and Dennis W. Rook, Valdosta, GA : Association for Consumer Research, Pages: 361-362.

Advances in Consumer Research Volume 30, 2003     Pages 361-362



Sue O’Curry, DePaul University

Personal financial management is a concern for virtually all consumers. Because the number of attractive ways to spend money almost always exceeds the money available, consumers must impose restraints on their own behavior to avoid negative financial consequences. This session examined the role of self-control in personal financial management from multiple theoretical and methodological perspectives.

The first paper, "Cultural Values Framing the Use of Revolving Credit" by Nina Diamond and Sue O’Curry, examined cultural beliefs about personal money management held by consumers who revolve credit card debt. Almost 60% of American households have revolving credit card debt with average balances over $8,000 (Manning, 2000). While indebtedness is the actual state of the majority of American consumers, debt has long been viewed as a sign of moral weakness. Conversely, thrift and avoidance of luxury have been viewed as virtues. This research used ethnographic interviews to understand whether traditional values of thrift still hold for consumers who revolve credit card debt.

The following themes emerged from the interviews:

Life is for living

Credit enables "life," limited means should not limit ability to consume things that are enjoyable and add meaning to one’s existence.

Blurred meaning of credit

Credit has both positive and negative meanings: an indicator that one is doing well, a means to access the good life; but also a temptation, "the devil."

Budget construed as end, not means

Most indicated they would like to be able to budget, but found it too difficult. Both having too little money and having more money than one needed were seen as reasons to not need a budget.

Meaning of fiscal responsibility

As long as a bill is paid on time, one is being responsible, even if only the minimum is paid. For most, bankruptcy was something to be avoided at all possible costs.

Idiosyncratic bill paying practices

Few respondents paid the highest interest rate bills first, which would have been the optimal strategy from a financial perspective. Instead, many paid the smallest bills first, reporting that this gave them a sense of accomplishment. Others paid some fraction of the balance, or the minimum plus an extra $10 or $20.

Other findings were that respondents differentiated between personal money management and work-related money management: they knew how to do it, but didn=t apply this knowledge to their own situations. Finally, most respondents saw their financial situations as temporary, although most of them had been revolving debt for years.

Overall, this study provided evidence that revolvers continue to hold traditional values about fiscal responsibility, but now define fiscal responsibility as making payments on time, rather than being debt-free.

The second paper," Debt Aversion as Self-Control: Consumer Self-Management of Liquidity Constraints" by Klaus Wertenbroch, Dilip Soman, and Joe Nunes studied the antecedents of consumers’ decisions of whether or not to take on consumer loans and to carry revolving consumer debt from one period to the next

The authors developed and tested a multi-period mental budgeting model of consumer debt aversion as a self-control strategy. The model showed that financing current consumption of hedonic goods is more likely to lead to total consumption in excess of one’s mental budget than financing current consumption of utilitarian goods. This is because financing current consumption artificially inflates the liquidity available for future consumption, and because hedonic goods are more likely to be over consumed in the absence of liquidity constraints. Consumers with a need for self-control impose liquidity constraints on themselves by avoiding financing purchases or selecting more stringent payment terms for hedonic goods. Evidence came from four experiments.

Experiment 1 showed that consumers with a higher situational need for self-control preferred not to finance current consumption. Subjects faced with more tempting pleasure-oriented consumption opportunities and immediate gratification preferred to pay by check, while those faced with less tempting and more instrumentally oriented consumption opportunities and more delayed gratification preferred to pay by credit card. Subjects in Experiment 2 self-imposed stricter payment terms in order to finance current consumption when financing could lead to excessive overall consumption. Experiment 3 showed that debt aversion depends directly on subjects’ enduring need for self-control. Wertenbroch (1998) and O’Donoghue and Rabin (1999) have argued that consumers who pay a premium in order to impose constraints on their own choices are behaving strategically and that this provides direct behavioral evidence of self-control, much like a "smoking gun." Experiment 4 provided such evidence. Consumers were asked to imagine that they were considering buying a new car and induced a need for self-control of hedonic consumption by framing the car either as hedonic or utilitarian. Subjects were twice as likely to choose a shorter, more expensive loan option over a longer, cheaper one, both among those who wanted to pay cash or finance the purchase and among only those wanted to finance the purchase. This shows that subjects chose the more stringent loan terms strategically.

The last paper, "Addiction or Rational Investing? The Personality Profile and Emotional Lives of Frequent and Infrequent Traders" by Michal Strahilevitz reported data from a series of online surveys of investors examining the extent to which online investors feel in control or out of control of their trading behavior. Strahilevitz suggested that by Prelec’s 1993 definition of addiction as a disorder of consumption rate (engaging in the addiction too often, without the ability to stop), extremely frequent trading could be considered a compulsive behavior, similar to compulsive spending, compulsive eating, drug use, alcoholism and binge eating.

Compared to infrequent traders, frequent traders reported more intense emotions when trading stocks. This included both positive emotions and negative emotions, such as worrying more about their investments, regretting a arger portion of their investment decisions and blaming themselves for bad executions. Frequent traders also reported having more regret and worrying more in their daily lives (in activities unrelated to trading stocks or investing). However, as compared to infrequent traders, frequent traders reported being more excited about buying stocks, selling stocks and trading in general. They also rated trading stocks to be more stimulating and were more likely to consider a day without executions to be a dull day. Compared to infrequent traders, frequent traders consider realized gains to be more exciting and unrealized gains to be less exciting.

Frequent traders also appeared to suffer from overconfidence. They rated themselves as more informed about the market and more skilled as investors compared to the average person, as well as smarter with respect to issues unrelated to investing.

Frequent investors appeared to be aware that they might have a problem in their investing behavior. They were far more likely to say they were addicted to trading, and that a much greater proportion of American investors were addicted to trading, compared to infrequent traders. Frequent traders also thought they were less careful in the market relative to the average investor, less careful than the average person in their daily lives, and reported more out of control feelings with respect to both their investment behavior and their lives in general. They rated themselves as more impulsive in both their buying and selling of stocks, and also more impulsive in their daily (non-trading) lives.

Taken together, the studies show the importance of self-control in one of the most vital areas of consumer behavior: managing one’s finances.



Sue O’Curry, DePaul University


NA - Advances in Consumer Research Volume 30 | 2003

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