The Covid pandemic has placed many of our personal finances into a period of flux, with millions placed either into furlough measures or redundancy.  While it may have prompted a period of belt-tightening, research from the University of Notre Dame suggests we may not have the most realistic perspective on our personal responsibility levels.

“People generally hold positive illusions of being financially responsible, because this enables them to feel good about themselves,” the researchers say.

The researchers worked on an intervention to combat this bias by encouraging people to better recognize how often they spend money unnecessarily.  This in turn prompts a rethink of their self-perceptions of financial responsibility and encourages saving.

Superfluous spending

The intervention required volunteers to answer a five-question survey before making a decision on whether to save money or not.  The questions revolved around superfluous spending behaviors from the past, such as eating out rather than cooking at home.

The answers to each question were on a continuous scale that was anchored towards either a relatively low frequency (once per year) or a relatively high frequency (ie 12 or more times per year) for each activity.

The scale anchors were designed in such a way that most of the responses would fall into the upper range, which would signify high levels of superfluous spending in the past.  This prompted the volunteers to better recognize their exuberance and enhance the likelihood that they would save in the future.

The approach was proven to be effective in a range of settings, including poor coffee growers in rural Uganda as well as students at Notre Dame university, which the researchers believe highlights its potential to change our behavior and encourage greater financial responsibility.

“Collectively, this work shows that people view their financial responsibility through rose-colored glasses, which can undermine their financial well-being,” the researchers conclude. “People around the world are not saving enough money, and we propose that one reason they under-save is because they falsely believe themselves to be financially responsible. If that is in fact the case, deflating this inflated self-view may increase saving, as people should become motivated to restore perceptions of financial responsibility.”