Rumination and Financial Decision Making among the Poor

Gita Venkataramani Johar, Rachel Meng, and Keith Wilcox, 2016, 16-129

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The poor often make myopic financial decisions, such as overborrowing or taking on harmful loans. However, little is understood about why economically disadvantaged consumers behave myopically and how to reduce such tendencies.

In this article, Gita Johar, Rachel Meng, and Keith Wilcox identify one source of this behavior—financial rumination, or the tendency towards repetitive, persistent thoughts about a focal stressor (i.e., poverty) and its causes and consequences. Further, they test the effectiveness of two strategies for reducing ruminative thinking to improve financial decisions.

Evidence from four studies suggests that the poor (categorized as those with annual household income below $40K) chronically ruminate more on their financial concerns than the nonpoor, leading them to express greater present bias in monetary decisions and higher willingness to borrow from myopic debt sources (e.g., payday loans).

Isolating rumination as a driver of present bias enabled the researchers to derive and test interventions to reduce such behavior. Specifically, they found that diverting the poor’s focus from money-related concerns to a different domain and increasing their perceptions of social support attenuated the tendency to make myopic financial decisions.

These results are of direct import for practitioners invested in improving the decision making of the poor. The repeated use of predatory financial services by this vulnerable population continues to exacerbate their position. Rather than explicitly counseling poor households to avoid the perils of dwelling on their economic situation, policymakers and financial empowerment firms may be better off incorporating “just-in-time” nudges that reduce ruminative thinking in the moment.

Gita V. Johar is the Meyer Feldberg Professor of Business, Rachel Meng is a doctoral candidate, and Keith Wilcox is the Meyer Feldberg Associate Professor of Business, Columbia Business School. Authorship order is alphabetical.

We thank the Qualtrics Behavioral Research Grant team, the Marketing Science Institute, Critical Mix, and the Columbia Business School Research Fund for generously supporting this research.

Related links

Feeling Economically Stuck Increases Variety Seeking
Sunyee Yoon and Hyeongmin Christian Kim (2016) [Report]

Consumer Insights: Findings from Behavioral Research
Joseph Alba, ed. (2011) [Book]


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