Exploring the Relationships Between Impatience, Savings Automation, and Financial Welfare

Financial Planning Review, Forthcoming

36 Pages Posted: 2 Jan 2019

See all articles by Brianna Middlewood

Brianna Middlewood

Consumer Financial Protection Bureau

Alycia Chin

Public Company Accounting Oversight Board

Heidi Johnson

affiliation not provided to SSRN

Melissa A. Z. Knoll

Consumer Financial Protection Bureau

Multiple version iconThere are 2 versions of this paper

Date Written: December 3, 2018

Abstract

The Behavioral Life-Cycle hypothesis (Thaler & Shefrin, 1981) models consumers as having both impatient “doer” preferences, representing their desire to spend now, and patient “planner” preferences, representing long-run welfare considerations. The Behavioral Life-Cycle hypothesis suggests that those with doer preferences may benefit from strategies that constrain their present behavior and promote saving for the future, like automating deposits into savings accounts. We analyze over 4,000 responses from the nationally representative National Financial Well-Being Survey to (1) describe consumer characteristics associated with the decision to automate savings deposits, and (2) explore whether automation is related to improved financial welfare, especially for impatient consumers. We find that savings automation is positively associated with financial socialization (whether the respondent’s family discussed financial matters growing up) and financial skill (the ability to act on financial knowledge). We also find that impatient consumers — relative to those with stronger planner preferences — have fewer liquid savings, lower financial well-being, less confidence in their ability to raise $2,000, and more difficulty paying bills. However, as predicted, these differences between consumers with doer and planner preferences largely disappear for those who automate savings deposits. We discuss implications of this research for financial planners in helping clients improve financial welfare.

Keywords: Savings Automation, Financial Well-Being, Household Finance, Behavioral Life-Cycle Hypothesis

JEL Classification: D12, D14, D69, D91

Suggested Citation

Middlewood, Brianna and Chin, Alycia and Johnson, Heidi and Knoll, Melissa A. Z., Exploring the Relationships Between Impatience, Savings Automation, and Financial Welfare (December 3, 2018). Financial Planning Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3295175

Brianna Middlewood

Consumer Financial Protection Bureau ( email )

United States

Alycia Chin (Contact Author)

Public Company Accounting Oversight Board ( email )

1666 K Street, NW
Washington, DC 20006-2
United States

Heidi Johnson

affiliation not provided to SSRN ( email )

Melissa A. Z. Knoll

Consumer Financial Protection Bureau ( email )

United States

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