Feeling Wealthy? How Your Tax Refund (Or Payment) Is Influencing You

My colleagues and I have found that simply feeling financially deprived (or financially flush) predicts people’s feelings and choices.
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When you filed your taxes earlier this month, did you notice whether you received a refund or had to make a payment? You probably did. Did you ever consider that the extra cash or added expense could influence your subsequent behaviors in predictable ways? Probably not.

It turns out that paying your taxes, and exposure to other miscellaneous cues, can trigger feelings of financial hardship and, in turn, fundamentally change how you make an array of decisions.

When areas of our life are hard to evaluate objectively, we rely on subjective measures, like how we stack up against our peers or how we compare to ourselves in the past. These comparisons help us understand our standing in the world. Researchers have found that money is inherently inevaluable – that is, difficult to measure, evaluate, and understand without a benchmark – lending itself to relative comparisons.

In experiments that control for the effect of income, my colleagues and I have found that simply feeling financially deprived (or financially flush) predicts people’s feelings and choices. For example, spending a few minutes listing a couple reasons why you feel financially strapped can temporarily arouse feelings of financial deprivation and lead individuals to cheat for financial gains. In other studies, we found that reflecting on times when you felt your peers had more financial resources than you did can lead you to seek and consume relatively scarce goods that seem difficult for others to obtain – a motive aimed at lessening the perceived imbalance of resources between your peers and you.

These findings suggest that how we think about our financial state is malleable. While our income, our assets, and our material possessions help inform us about our financial stability, multiple (sometimes subtle) cues or events in our environment also clue us into how well or poorly we’re doing, financially. These can take the form of filing your taxes, watching reality TV (think “Keeping Up with the Kardashians”), or scanning your Facebook feed.

When these cues highlight our financial shortcomings, they are capable of triggering feelings of financial insecurity that fundamentally shift how we process information and make choices. Several consumer psychology experiments have shown that people’s perceived financial state can be manipulated, somewhat independent of their objective financial state. Thus, “feeling rich” and “feeling poor” are feelings that are not necessarily specific to any particular income bracket, and when those feelings are induced, they can trigger similar behaviors among those who are relatively wealthier and poorer.

These findings further suggest that, if we rely only on objective measures of wealth, such as income, when trying to make sense of our own and others’ financial position, our understanding of what affects consumer decision-making will fall short.

As consumers, we must routinely consider our financial standing when we assess how much we can afford to spend on things like education, housing, and vacations. We need to consider how much debt we’re capable of managing, and how much we need to save for retirement. A potentially warped view of our financial standing can hinder stable, accurate perceptions of wealth and may lead to myopic decision-making. In a similar vein, any business that considers consumers’ income as part of their business strategy may better serve themselves and their customers by understanding consumers’ felt financial state in addition to their actual financial state.

To be sure, objective financial states do help inform wealth perceptions and should not be ignored. There are surely differences between someone who has $5 million in the bank vs. $500 in the bank. But if we want to understand the nuances of human behavior, we need to understand the nuances of perceived wealth as well.

Many researchers are investigating the effects of perceived financial constraints on consumer decision-making through the use of tightly controlled experiments. Hopefully, this work will encourage organizations and the broader public to get a better idea of how perceived financial states change behavior, and with that understanding, we can be better equipped as consumers and businesses to understand how fleeting cues in our environment might unwittingly affect consumer decision-making across income brackets.

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