Extroverted populations tend to have lower savings rates, new research shows.
“Many of the choices that people make are influenced by their personality characteristics,” says Jacob Hirsh, assistant professor at Rotman School and University of Toronto Mississauga’s Institute for Management and Innovation.
“I started to think about how that affect might play out across larger groups.”
In his previous work, Hirsh has shown that more extroverted individuals tend to choose smaller but immediate rewards instead of larger but delayed ones.
“Extroverts are far more sensitive to rewards, which makes it harder for them to overcome their desire for immediate gratification,” says Hirsh. “When making financial decisions, this can contribute to impulsive spending, higher credit card debts, and reduced savings.”
If personality traits are related to individual saving behavior, what would happen when entire populations differ in their personality characteristics? In the new paper, Hirsh examines this question using three different data sets.
In the first study, Hirsh found a correlation between United States extroversion levels and changes in the personal savings rate over time. During the same period that US savings rates underwent a sharp decline, there was a corresponding increase in US extroversion levels.
In a second study, Hirsh found that US states with higher average extroversion levels tended to allocate more of their income toward immediate consumption, rather than setting money aside for saving.
A final study examines how the average extroversion levels of different countries were related to gross national savings as a percentage of GDP (gross domestic product).
“Across all three different analyses, the same pattern emerged,” Hirsh says. “The more extroverted the population, the lower the savings rates tended to be, even when controlling for population differences in age, life expectancy, and wealth.”
Although the pattern was consistent across studies, Hirsh cautions that correlation does not guarantee causation.
“We can’t be certain about the direction of causality here,” he say, “but to the extent that aggregate savings reflect individual choices, there is reason to think that personality traits can indeed have a causal influence.”
Overall, the findings suggest that personality psychology can contribute to an understanding of financial decision-making and economic behavior.
“We know that personality traits have a powerful influence on an individual’s life outcomes,” says Hirsh. “We are only beginning to understand the broader social and economic consequences of these personality differences.”
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