A Penny Saved Is Not a Penny Earned: When Decisions to Earn and Save Compete for Consumer Resources

Policy makers, practitioners, and researchers emphasize the importance of consumers developing capabilities to improve their financial well-being. Key principles concern the management of two integral resources: earnings and savings. Although prior research has examined factors influencing those resources independently, less is known about how earn-save decisions are made in conjunction: for example, how people allocate hours in a day to activities aimed at learning how to increase earnings or savings. Thus, we examine how people think about and decide between opportunities to earn and save. In addition, we study whether perceived financial deprivation interacts with preferences for earning and saving opportunities. Four experiments show that (1) people prefer options to earn over options to save, despite believing that increases in earnings may not increase savings, (2) perceived financial deprivation heightens preferences for earning over saving, and (3) reframing saving options as earning options enhances preferences for saving among the financially deprived. onsumers have two primary ways to enhance their financial position: (1) increase monetary inflows (“earning”) and (2) reducemonetary outflows (“saving”). Accordingly, they may pursue three main strategies: focus on ways to increase their earnings, cut back on expenses, or both. Extensive research has shown that increases in income do not necessarily increase well-being (Diener and Seligman 2004); indeed, the balance of one’s bank account better predicts well-being than does one’s income (Ruberton, Gladstone, and Lyubomirsky 2016). Thus, while both earning and saving are critical financial behaviors, saving may be a key determinant of consumers’ subjective well-being. Despite how fundamental earning and saving decisions are to individuals’ financial stability and subjective wellbeing, relatively little consumer research has focused on understanding how people think about and make decisions between opportunities to earn and save. The current work addresses these questions by examining how people allocate their resources (e.g., cognitive, time, effort) toward opportunities to earn and save. In particular, we examine whether people may select an “earning” strategy and shift their resource allocation toward opportunities to earn more. We conceptualize this shift in resources as the greater alEesha Sharma ([email protected]) is assistant professor of busin Hall, Hanover, NH 03755. Punam A. Keller ([email protected] School of Business, Dartmouth College, 100 Tuck Hall, Hanover, NH 03755. Th for constructive comments on prior versions of the article. The authors also than JACR, volume 2, number 1. Published online January 13, 2017. http://dx.doi.or © 2017 the Association for Consumer Research. All rights reserved. 2378-1815 This content downloaded from 129.1 All use subject to University of Chicago Press Terms location of one particular resource (e.g., thought content or time), to opportunities to earn rather than save. For example, when people consider their financial position, to what extent do their thoughts (cognitive resources) contain concepts pertaining to earning relative to saving? In a 24-hour day, how many hours (time resources) do people prefer to spend learning about ways to earn more versus save more? The current work offers theoretical and practical insights by highlighting the existence of trade-offs between earning and saving decisions. Further, we incorporate how people’s perceptions of their financial standing factor into those decisions for a more nuanced perspective. We demonstrate that people prefer earning rather than saving and that this preference is greater among those who feel financially deprived. To our knowledge, there has been no systematic investigation into how consumers think about, allocate resources to, and choose between opportunities to earn and save, particularly when feeling financially deprived versus privileged. We conducted four experiments to test our proposition that people prefer opportunities to earn over opportunities to save (even when they believe they may not save more if ess administration, Tuck School of Business, Dartmouth College, 100 Tuck u) is Charles Henry Jones Third Century Professor of Management, Tuck e authors wish to thank Kevin Keller, Don Lehmann, and Stephanie Tully k Kamran Ali, Hayley Bacon, and Shinar Jain for their research assistance.