Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Students need help to save money, but don't always know it: study

26.08.2010
Students could use help saving more money, but they don’t always know it, says a University of Waterloo study.

Most people intend to save more money, and spend less, than they currently do. If they were offered a simple way to do so, would they take it? New research suggests the answer is no.

And the reason is that their very good intentions can give rise to a sense of optimism that leads them to undervalue opportunities that could make it easier to actually achieve a long-term savings goal.

"Our results highlight the costs of being too optimistic," said the study’s senior author, psychology professor Derek Koehler.

Researchers at Waterloo asked students in the university’s co- operative education program to set a savings goal at the beginning of a work term, and then asked them again at the end of the term whether they had met their goal. Co-op students alternate work and study terms, and most plan to save much of their earnings from the work term for use during the subsequent study term.

At the beginning of the term, the students expressed strong intentions to save and estimated their chances of doing so to be quite high, around 85 per cent on average. If those self-predictions were accurate, then about 85 per cent of the students would have been expected to achieve their goal by the end of the term.

But only 65 per cent of the students reported having been successful. In short, at the beginning of the term, students were overly optimistic about their chances of reaching their savings goal.

Some of the students were offered enrolment in a program that could help them to save. The program required them to monitor their savings and report their progress every other week during their work term. It turns out that the students in the program were more successful at achieving their savings goals.

Although the progress-report program helped the students to save, the students failed to recognize its benefits.

When they were asked at the beginning to predict the impact it would have, most students thought the program wouldn’t do anything to help them. After all, they were very optimistic (in fact, too optimistic) that they could achieve their savings goal without any outside help.

In a second study, the progress-report program was described to another group of students, who were asked how much they were willing to pay to be enrolled in it. (The cost was deducted from an $8 payment the students received for being in the study.)

Students were typically unwilling to pay more than $1 for the program, and the most common response was zero. In reality, the progress-report program seems to have been worth quite a bit more, given that it increased students’ chances of achieving their savings goal, which averaged around $5,000, by a full 10 percentage points.

The study’s authors suggest that being overly optimistic about achieving future goals, whether in saving money or in some other aspect of life, can be costly if it leads people to overlook ways in which they could make it easier to accomplish those goals.

Take RSPs as an example. Many people intend to make a contribution every year but fail to do so. Optimism that they will manage to make a lump-sum contribution by the end of the year might lead them to undervalue the benefits of setting up automatic monthly (and less painful) withdrawals from a bank account to a RSP.

As the authors conclude, optimism "can be costly if the disproportionate focus on good intentions leads people to overlook steps they could take to make their futures brighter."

Interestingly, the optimism the students exhibited in predicting their own success in achieving their savings goals did not extend to their predictions of how other students would fare.

In fact, the same students who had undervalued the progress-report program for themselves, thought it would be helpful for others.

The study's authors say that being "in the grip" of a strong intention to accomplish an important goal makes people’s self-predictions of their own future behaviour more susceptible to excessive optimism than their predictions of how others will behave.

The study, Good Intentions, Optimistic Self-Predictions, and Missed Opportunities, is scheduled to appear in a forthcoming issue of the journal Social Psychological and Personality Science. It is available online at spp.sagepub.com/content/early/recent.

The two other researchers involved in the study are Rebecca White, a postdoctoral fellow with the Center for Decision Research at the University of Chicago Booth School of Business, and Leslie John a doctoral candidate in behavioural decision research at Carnegie Mellon University.

About Waterloo

The University of Waterloo, located at the heart of Canada's Technology Triangle, is one of Canada's leading comprehensive universities. Waterloo is home to 30,000 full- and part-time undergraduate and graduate students who are dedicated to making the future better and brighter. Waterloo, known for the largest post- secondary co-operative education program in the world, supports enterprising partnerships in learning, research and discovery. For more information about Waterloo, visit www.uwaterloo.ca.
Resources
Contacts:
Derek Koehler, professor of psychology, 519-888-4567 ext. 35013 or dkoehler@uwaterloo.ca

John Morris, Waterloo media relations, 519-888-4435 or jmorris@uwaterloo.ca

John Morris | EurekAlert!
Further information:
http://www.uwaterloo.ca

More articles from Studies and Analyses:

nachricht The importance of biodiversity in forests could increase due to climate change
17.11.2017 | Deutsches Zentrum für integrative Biodiversitätsforschung (iDiv) Halle-Jena-Leipzig

nachricht Win-win strategies for climate and food security
02.10.2017 | International Institute for Applied Systems Analysis (IIASA)

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: A “cosmic snake” reveals the structure of remote galaxies

The formation of stars in distant galaxies is still largely unexplored. For the first time, astron-omers at the University of Geneva have now been able to closely observe a star system six billion light-years away. In doing so, they are confirming earlier simulations made by the University of Zurich. One special effect is made possible by the multiple reflections of images that run through the cosmos like a snake.

Today, astronomers have a pretty accurate idea of how stars were formed in the recent cosmic past. But do these laws also apply to older galaxies? For around a...

Im Focus: Visual intelligence is not the same as IQ

Just because someone is smart and well-motivated doesn't mean he or she can learn the visual skills needed to excel at tasks like matching fingerprints, interpreting medical X-rays, keeping track of aircraft on radar displays or forensic face matching.

That is the implication of a new study which shows for the first time that there is a broad range of differences in people's visual ability and that these...

Im Focus: Novel Nano-CT device creates high-resolution 3D-X-rays of tiny velvet worm legs

Computer Tomography (CT) is a standard procedure in hospitals, but so far, the technology has not been suitable for imaging extremely small objects. In PNAS, a team from the Technical University of Munich (TUM) describes a Nano-CT device that creates three-dimensional x-ray images at resolutions up to 100 nanometers. The first test application: Together with colleagues from the University of Kassel and Helmholtz-Zentrum Geesthacht the researchers analyzed the locomotory system of a velvet worm.

During a CT analysis, the object under investigation is x-rayed and a detector measures the respective amount of radiation absorbed from various angles....

Im Focus: Researchers Develop Data Bus for Quantum Computer

The quantum world is fragile; error correction codes are needed to protect the information stored in a quantum object from the deteriorating effects of noise. Quantum physicists in Innsbruck have developed a protocol to pass quantum information between differently encoded building blocks of a future quantum computer, such as processors and memories. Scientists may use this protocol in the future to build a data bus for quantum computers. The researchers have published their work in the journal Nature Communications.

Future quantum computers will be able to solve problems where conventional computers fail today. We are still far away from any large-scale implementation,...

Im Focus: Wrinkles give heat a jolt in pillared graphene

Rice University researchers test 3-D carbon nanostructures' thermal transport abilities

Pillared graphene would transfer heat better if the theoretical material had a few asymmetric junctions that caused wrinkles, according to Rice University...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Ecology Across Borders: International conference brings together 1,500 ecologists

15.11.2017 | Event News

Road into laboratory: Users discuss biaxial fatigue-testing for car and truck wheel

15.11.2017 | Event News

#Berlin5GWeek: The right network for Industry 4.0

30.10.2017 | Event News

 
Latest News

NASA detects solar flare pulses at Sun and Earth

17.11.2017 | Physics and Astronomy

NIST scientists discover how to switch liver cancer cell growth from 2-D to 3-D structures

17.11.2017 | Health and Medicine

The importance of biodiversity in forests could increase due to climate change

17.11.2017 | Studies and Analyses

VideoLinks
B2B-VideoLinks
More VideoLinks >>>