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Feeling Grateful Makes You A Better Saver And Investor, Study Shows

Apr 1 2014, 5:03pm CDT | by

How were you feeling the day you had to turn in the form telling your benefits department what percent of your salary you wanted to set aside for your 401K? Or the time you were deciding to rack up...

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29 weeks ago

Feeling Grateful Makes You A Better Saver And Investor, Study Shows

Apr 1 2014, 5:03pm CDT | by

How were you feeling the day you had to turn in the form telling your benefits department what percent of your salary you wanted to set aside for your 401K? Or the time you were deciding to rack up $5,000 in credit card debt so you and your spouse could take a two-week cycling vacation in the south of France? What mood were you in when you got that $10,000 check from your late aunt’s estate and were debating whether to invest it all in your Vanguard index fund or spend$1,500 on that leather jacket you’d been coveting?

A new paper by professors at Northeastern, Harvard, and University of California at Riverside says that if you were feeling a sense of gratitude when making those decisions, you would likely have put the maximum in your 401K, foregone the cycling trip and invested all $10,000 in your index fund. According to the paper, “Gratitude: A Tool for Reducing Economic Impatience,” to be published in the journal Psychological Science, most of us fight an impulse for immediate gratification when we make financial decisions, especially if we’re feeling sad or even just neutral about our state of affairs.  According to the conventional social science wisdom, we make the best financial decisions when we take emotions out of our decision-making completely.  But David DeSteno, a psychology professor at Northeastern University and one of the paper’s lead authors, says he and his colleagues have empirically proven that gratitude produces superior financial decisions.

For their experiment, the authors ran a lab test on 75 participants who got both course credit for participating and a cash award based on their decisions about whether to take home a small sum of money immediately or a larger sum at some point in the future. In the experiment, the time frame ran from just one week to six months and the sums ranged from a low of $11 to a cash award of $85.

To test their hypothesis about gratitude, the researchers had the participants do what the paper calls an “emotional-induction procedure.” They were instructed to recall an event that made them feel grateful, something that made them feel happy or a day where nothing much of consequence happened and they felt neutral. They wrote about those events in detail for five minutes and then they were asked to describe their emotional state (sad, angry, grateful, happy) and rank it on a 5-point scale. Most of the study participants were in their 20s and when describing situations where they felt grateful, many of them wrote about getting help with a boyfriend or girlfriend, or receiving letters of recommendation from a superior.

Next they made 27 choices about getting cash immediately or receiving larger sums if they were willing to let time elapse. What DeSteno and his colleagues found: the mean grateful participant wanted $63 immediately to be willing to pass up $85 in three months. That contrasted with the neutral or happy participant who only needed $55 to be willing to forgo the $85 in the future.

Why does gratitude make us more patient? “If someone helps me and I don’t help them back or someone gives me a gift and I don’t gift them back, then long term, that’s a problem for the relationship,” posits DeSteno. “We need an emotional state to solve that problem.” In other words, we need to feel gratitude in order to want to be generous to our friends, which in turn, furthers the friendship. “When it comes to financial investing, when you feel grateful it makes you not devalue the future reward.”

DeSteno, 46, has done other studies on gratitude. In 2010 he broke ground with a paper showing that financial partners who were experiencing feelings of gratitude were more likely to behave ethically and  divvy up profits equally than to try to hoard the money.  For that study, DeSteno and his fellow researchers set participants up with computers and asked them to answer long, complex logic problems. They rigged the computers up to crash but they also had people in the lab who volunteered to fix the broken machines. The study participants whose computers had broken down and then gotten fixed, were eager to divide proceeds equally with their partners.

The takeaway from these studies: If you can summon up a feeling of gratitude before you make an investment decision, you will be more likely to make the right choice. “When we ask ourselves, should I blow my money right now and enjoy it, or is it more wise for me to put it away and enjoy it later, it takes most of us a lot of effort to decide to save the money,” says DeSteno. “But if you allow yourself to feel grateful, it will take you less effort to do the right thing.”

Source: Forbes Business


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Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

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Source: Business Times Singapore   Full article at: Business Times Singapore


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