Thursday, May 7, 2009

Issue Brief on How Emotions Influence Savings Behavior

Gergana Y. Nenkov, Deborah J. MacInnis, and Maureen Morrin at Boston College’s Center for Retirement Research have posted “How Do Emotions Influence Savings Behavior?” They examine how two different emotions, hope and hopefulness, affect 401(k) participation and asset allocation. Their research indicates that

…people who are hopeful that they will manage to save enough for retirement are motivated by threats to their hopefulness, while this tactic is likely to backfire for people who are not as hopeful. On the other hand, people with a strong hope for having enough to retire increase their information search and risk-taking behavior as a result of a threat to their hope, so threatening the possibility of their desired outcome might prompt them to search more comprehensively, but also to take excessive risks.

The results seem to imply that you need to set realistic goals that you are hopeful of achieving. These savers respond to minor setbacks by increasing their efforts. On the other, those who set unrealistic goals are more likely to abandon their planned savings when confronted with adversity.

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