Consumers may often fall into one of two categories – those who are likely to grab last-minute items at the checkout counter and those who would rather start a savings account for retirement. Even those who tend to spend more conservatively make rash decisions sometimes, which include impulse purchases, spending more than they can afford and neglecting to save for the future.
In research conducted at the Carson College of Business at Washington State University, we have found spending habits and financial responsibility can be influenced by whether a person is present or future oriented. Consumers who base their financial actions on immediate consequences are classified as people with a “present” time orientation, whereas those who consider future consequences during their decision-making process are classified as those with a “future” time orientation.
In one study, participants chose between receiving a smaller immediate reward (e.g., $55 today) or a larger reward in the future (e.g., $75 in two months). As a separate exercise, participants also had to allocate $900 however they wished between four categories (savings, paying off debt, vacation or purchasing a product). Participants’ decisions reflected the type of time orientation they adopted. For example, participants with a future time orientation were more likely to select the larger delayed reward and pay off debt, and less likely to spend their windfall on impulse buying.
In related research, we have drawn on the “strength model” of self-control to better understand purchasing patterns. The model identifies self-control as both a personality trait and a temporary state. The trait of self-control is reflected by the wide spectrum of people who show high self-control or low self-control during certain situations. Self-control is also affected by a myriad of factors such as stress and the need to regulate one’s thoughts, emotions and behavior. Interestingly, research finds that self-control can (much like a muscle) also be strengthened over time through repeated exercises.
In one recent study, for example, we tested whether we could build up consumers’ self-control to resist impulsive buying tendencies. Impulsive buying is responsible for more than $4 billion in retail store sales. In fact, a recent CreditCards.com survey expressed that 75 percent of Americans make impulsive buys, and half regret them. While some consumers may struggle with impulse buying after an emotionally or physically draining day, our research suggests these urges may be suppressed through physical and cognitive exercises that build up self-control over time. Other examples of exercises shown to increase self-control include sticking to a regular workout schedule, keeping a food journal or tracking one’s finances, which all require sustained self-control over time.
Though those who prefer immediate rewards tend to make less optimal long-term financial decisions, this research suggests interventions that can help avoid negative financial outcomes. Other recommendations to increase financial well-being include establishing a savings plan that allows room for immediate rewards and long-term savings. For example, automatically depositing a portion of earnings into a savings account, utilizing automatic billing options and purchasing items with a debit card or even cash – both of which increase the “pain of payment” and thus decrease spending.
Dr. Jeff Joireman is an associate professor of marketing at Washington State University, Carson College of Business. The majority of his current research focuses on how temporal concerns predict financial decision-making and consumer behaviors related to the environment.