Featured Research

from universities, journals, and other organizations

Who's wealthy? Beyond net worth, asset and debt levels change our perceptions

Date:
January 10, 2012
Source:
Association for Psychological Science
Summary:
Will borrowing money to buy a new car make you feel richer? It depends on your net worth, says a new study. "People's perceptions of wealth vary not only as a function of their net worth, but also of the amount of assets and debt they have," says a psychology graduate student.

Will borrowing money to buy a new car make you feel richer? It depends on your net worth, says a new study in Psychological Science, a journal published by the Association for Psychological Science. "People's perceptions of wealth vary not only as a function of their net worth, but also of the amount of assets and debt they have," says Princeton University psychology graduate student Abigail B. Sussman, who wrote the study with Princeton professor Eldar Shafir.

Related Articles


In fact, increasing your assets by taking on debt affects perceived wealth in opposite ways for people who are in the red (their debt outweighs their assets), or in the black (their assets outweigh their debt).

The studies recruited participants from the online platform Mechanical Turk. All were U.S. residents, average age 36, with average household incomes from $50,000 to $75,000. In six experiments, subjects considered pairs of financial profiles. In each pair, both profiles had equal positive or negative net worth, but one indicated lower debt and lower assets, while the other had relatively higher debt and assets. The first experiment tested perceptions: Participants were asked which person or household was financially better off. Whether shown brief, hypothetical descriptions or the detailed finances of actual households -- including stocks, home values, student loans, and mortgages -- the results were the same. When net worth was positive, more respondents called those with less debt wealthier than those with higher debt and more assets. By contrast, those in the red were perceived as wealthier when they had higher assets, even though accompanied by higher debt.

Do such perceptions lead to different decisions? Considering similar profile pairs, subjects were asked whether they'd borrow to buy something they couldn't pay for outright -- a luxury like a motorcycle or a necessity like bathroom repairs -- or whether, as a loan officer, they'd lend to someone to do so. Again, positive-net-worth people with low debt and negative-net-worth people with high assets were more likely to borrow or be seen as credit worthy.

Why these fickle responses? "People generally like assets and dislike debt, but they tend to focus more on one or the other depending on their net worth," says Sussman. "We find that if you have positive net worth, your attention is more likely to be drawn to debt, which stands out against the positive background." On the other hand, "when things are bad, people find comfort in their assets, which get more attention."

These findings challenge classical theories that net worth matters most in people's feelings about their financial situations. And, says Sussman, understanding the nuances the study reveals can help predict economic behavior that otherwise appears puzzling. A person deep in debt may borrow to buy a new car, while a person with positive net worth may skip the loan and the car. And both are likely to feel wealthier for doing so.


Story Source:

The above story is based on materials provided by Association for Psychological Science. Note: Materials may be edited for content and length.


Journal Reference:

  1. A. B. Sussman, E. Shafir. On Assets and Debt in the Psychology of Perceived Wealth. Psychological Science, 2011; 23 (1): 101 DOI: 10.1177/0956797611421484

Cite This Page:

Association for Psychological Science. "Who's wealthy? Beyond net worth, asset and debt levels change our perceptions." ScienceDaily. ScienceDaily, 10 January 2012. <www.sciencedaily.com/releases/2012/01/120110140429.htm>.
Association for Psychological Science. (2012, January 10). Who's wealthy? Beyond net worth, asset and debt levels change our perceptions. ScienceDaily. Retrieved October 31, 2014 from www.sciencedaily.com/releases/2012/01/120110140429.htm
Association for Psychological Science. "Who's wealthy? Beyond net worth, asset and debt levels change our perceptions." ScienceDaily. www.sciencedaily.com/releases/2012/01/120110140429.htm (accessed October 31, 2014).

Share This



More Science & Society News

Friday, October 31, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Fauci Says Ebola Risk in US "essentially Zero"

Fauci Says Ebola Risk in US "essentially Zero"

AP (Oct. 30, 2014) NIAID Director Anthony Fauci said the risk of Ebola becoming an epidemic in the U.S. is essentially zero Thursday at the Washington Ideas Forum. He also said an Ebola vaccine will be tested in West Africa in the next few months. (Oct. 30) Video provided by AP
Powered by NewsLook.com
Killer History on Display at Museum of Death

Killer History on Display at Museum of Death

AP (Oct. 30, 2014) Visitors take a trip down murderer memory lane at the Museum of Death located in the heart of Hollywood. (Oct. 30) Video provided by AP
Powered by NewsLook.com
Nurse Defies Ebola Quarantine With Bike Ride

Nurse Defies Ebola Quarantine With Bike Ride

AP (Oct. 30, 2014) A nurse who vowed to defy Maine's voluntary quarantine for health care workers who treated Ebola patients followed through on her promise Thursday, leaving her home for an hour-long bike ride. (Oct. 30) Video provided by AP
Powered by NewsLook.com
Ban On Wearable Cameras In Movie Theaters Surprises No One

Ban On Wearable Cameras In Movie Theaters Surprises No One

Newsy (Oct. 30, 2014) The Motion Picture Association of America and the National Association of Theatre Owners now prohibit wearable cameras such as Google Glass. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Science & Society

Business & Industry

Education & Learning

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins