Americans have never been particularly good at saving money. In 2013, for example, the Organization for Economic Cooperation and Development found that Americans saved on average only 4.5% of their household income, while Europeans saved nearly 8% and Australians more than 11%. But according to a new study by Stanford Graduate School of Business researchers, there's a way to change that: simply make people feel more powerful.
"When it comes to managing finances, it's easy for people to feel overwhelmed and out of control," says PhD student Emily Garbinsky. "How to help consumers regain control and make better decisions with their money is the focus of my work." To do so, she relies on the strong relationship between money and power, investigating how feelings of power critically influence financial decision-making. She demonstrates, in collaboration with Stanford GSB professor Jennifer Aaker and Anne-Kathrin Klesse of Tilburg University in the Netherlands, that making consumers feel more powerful increases their motivation to save.
Power is an especially intriguing and practical factor to examine in this context, the authors argue, because the sense of how powerful one feels is malleable. All people — even those generally perceived as more powerful than others — experience shifting feelings of power and powerlessness during the day; we might feel powerful when interviewing a job candidate or giving advice, for example, but powerless when defending a thesis or applying for a job. In the paper "Money in the Bank: Feeling Powerful Increases Saving," the authors manipulated these subjective feelings of power using a variety of well-established methods, including having participants recall a situation in which they felt powerful and having them sit in a chair that is higher than someone else's.
Through a series of five experiments, the authors showed that feeling powerful — defined as having control over valuable resources — is a pleasant state that individuals are motivated to maintain. And since money is the most coveted resource we have, they argue that individuals who feel powerful save money to secure their feelings of power. Indeed, they found that if power were guaranteed to be secure for life — or if power could be leveraged through another resource, such as knowledge — it did not help fill the piggy bank. The impulse to save was observed only when saving money was considered a means toward maintaining power.
In the first experiment, the researchers divided the subjects — 140 Dutch university students — into three groups: one assigned to write about a time they felt powerful, one to write about a time they felt powerless, and one with no writing prompt. Then they were told to imagine they had just received 100 euros, and asked how much they would put into a savings account. They also had to report how happy they felt at that particular moment. Though there was no significant difference in the level of happiness reported by the three groups, the students who had written about feeling powerful clearly indicated a greater willingness to save their money; their mean rate of savings was €71.20, compared with €48.73 for those who wrote about feeling powerless, and €51.69 among the participants in the control group.
The second one measured the effect of feeling powerful on actual, rather than imagined, savings behavior. Seventy-six Stanford students were offered $10 each to report to a lab under the assumption that they would provide feedback about how the lab operates. Each was individually ushered into a room and asked to sit either on a tall chair or a low ottoman; the interviewer took whichever seat was unoccupied. They answered a series of questions about the lab, and were then handed a sheet of paper indicating a new payment policy that gave them the option of either collecting their money or depositing it into a high-interest savings account. Then they completed a questionnaire on which they had to rate, among other things, how powerful they felt during the interview. Those who sat in the taller chair reported greater feelings of power than those on the ottoman. And the powerful agreed to save considerably more than the powerless: an average of $6.94 of the $10, compared with $4.49 — even though, as Garbinsky says, "the tall chair is a very subtle manipulation of power, and it doesn't work for everyone."
In the third study, just over 200 participants from the crowdsourcing Internet site Mechanical Turk were told to imagine a situation in which they were either the leader or a member of a group project. When they were given no stipulations on saving or told they were saving for "the future," the powerful saved considerably more (42% and 34%, respectively) than the powerless (13% and 18%). But when the savings supposedly went toward buying a BMW, a well-established status symbol, those without power agreed to save 23% of their income, while those with power agreed to save 13%. The results corroborate previous research showing that "powerless individuals are more attuned to what others think, and one way they can acquire power is by engaging in compensatory consumption," the study says.
In other experiments, those made to feel powerful, by imagining themselves as bosses, vowed to save more of their monthly income than those made to feel powerless, by imagining themselves as employees. However, those guaranteed a job for life agreed to save roughly the same share of their income — about 20% — whether they felt powerful or powerless. "When one's sense of power is secure and saving money no longer enables individuals to maintain feelings of power, the effect of power on saving disappears," the researchers wrote.
The differences between those feeling powerful and those feeling powerless also disappeared when the researchers explicitly linked another resource to maintaining power. They did so by having some study participants read a fictitious essay called "Knowledge Is Power," asserting that most people consider knowledge the key to success; another group read nothing. "In situations where money is no longer tied to power, those who feel powerful and those who feel powerless do not differ in the amount of money they are willing to save," they write.
The researchers hope that their findings, scheduled for publication in the Journal of Consumer Research in October, will have direct implications for America's savings rate. By drawing on the study, banks, government agencies, and employers can boost participation in existing programs designed to help Americans sock away cash, such as automatic enrollment savings plans, and ideally develop new interventions. "Most of the characteristics that make you more or less likely to save — things like education, upbringing, and income level — are not very changeable," says Klesse. "We show that very subtle shifts in feelings of power can have quite an impact on saving. This is very important because it's something that's easy to change."
Emily Garbinsky is a PhD candidate in marketing at Stanford GSB; the new study is based on part of her dissertation. Anne-Kathrin Klesse is an assistant professor of marketing at Tilburg University in the Netherlands. Jennifer Aaker is the General Atlantic Professor of Marketing at Stanford GSB.