Reducing Expenses to Face the Future: The Role of Lay Theories About Wealth Creation in Retirement Allocations

Abstract

This research shows that people hold two distinct lay theories, or common-sense explanations, about how wealth is created. Specifically, people may adopt an income lay theory (i.e., that earning more money is the major driver of wealth) or an expense lay theory (i.e., that spending less money is the major driver of wealth). When the expense lay theory is more accessible, either dispositionally or situationally, people are likely to allocate more money to retirement accounts. Ten studies (including four in the web appendix) collectively offer triangulating evidence for this effect and suggest that it arises because the greater accessibility of an expense lay theory is associated with a future financial orientation. Overall, this work contributes to research on lay theories, intertemporal choice, retirement planning, and financial decision-making.

Keywords: lay theories, wealth, retirement, investments, financial decision-making, personal finances, intertemporal choice

JEL Classification: D14, D91, J26, D83