May 15, 2020
This week, Matt Egan in CNN Business wrote a piece called “Americans create new economic threat with their own savings.” In it, he wrote that credit card debt is declining as American’s are spending less AND are paying down their balances.
This information piled on top of a conversation we had on our other podcast, Behavioral Grooves, with Mariel Beasley, the Director of the Center for Advanced Hindsight at Duke University. She shared current research that lower-to-middle income Americans are saving MORE during the pandemic.
On one hand, that’s totally rational because we don’t know how long the crisis is going to last and we need to save for what will sure to be additional expenses. On the other hand, increasing your savings when you don’t have a job doesn’t make sense.
In this Weekly Grooves, we discuss some of the research literature on scarcity, fear, and the common mistake made by gamblers to place risky bets when their winnings are down. We also discuss the possibility of anticipated regret as a possible explanation for savings behaviors.
We hope you enjoy it and that you’ll share this episode with a friend.
© 2020 Weekly Grooves
Egan, Matt, “Americans create new economic threat with their own savings” CNN, May 12, 2020: https://www.cnn.com/2020/05/12/investing/jobs-coronavirus-consumer-spending-debt/index.html
Carrns, Ann, “How to Build an Emergency Fund in the Middle of an Emergency,” The New York Times, March 20, 2020: https://www.nytimes.com/2020/03/20/your-money/coronavirus-emergency-fund.html “Each extra dollar saved” reduces the likelihood of having to skip bill payments, said Mariel Beasley, a co-founder of Common Cents Lab, a financial research group at Duke University.
Kahneman, Daniel, & Tversky, Amos, Prospect theory: An analysis of decision under risk. Econometrica, 47, 263–291, 1979: https://www.uzh.ch/cmsssl/suz/dam/jcr:00000000-64a0-5b1c-0000-00003b7ec704/10.05-kahneman-tversky-79.pdf
Loudenback, Tanza, “The pandemic spurred Americans to finally start saving money, but it's unclear how long the new habit will last,” Business Insider, May 14, 2020: https://www.businessinsider.com/personal-finance/us-savings-accounts-increase-during-pandemic-emergency-funds-2020-5
Shafir, Eldar, “The Psychology of Scarcity,” American Psychological Association, February 2014: https://www.apa.org/monitor/2014/02/scarcity
Weber, Bethany & Chapman, Gretchen, “Playing for peanuts: Why is risk-seeking more common for low-stakes gambles?” Organizational Behavior and Human Decision Making, 2003: https://tinyurl.com/y884upe7
“Covid-19 Crisis: Mariel Beasley on Increasing Short Term Savings During the Crisis,” Behavioral Grooves, May 13, 2020, episode 146: https://behavioralgrooves.com/episode/covid-19-crisis-mariel-beasley-on-increasing-short-term-savings-during-the-crisis/
Unemployment Rates in the United States from 1929 to 2019: https://www.thebalance.com/unemployment-rate-by-year-3305506
Behavioral Grooves: https://behavioralgrooves.com/
Kurt Nelson, PhD: @whatmotivates
Tim Houlihan: @THoulihan