- Would you prefer to have $20 tomorrow or $30 a month from now?
- Would you prefer a certainty of receiving $20 or a 60% chance of getting $50?
- Would you rather have $40 today or $50 next week?
- Would you rather be certain of receiving $30 or have a 40% chance of getting $45?
Recently, a team of researchers from MIT Sloan School of Management posed these questions to subjects in a series of experiments to confirm the impact of "life-history theory," which says that your early life environment creates a pattern of behavior and responses that emerge even more strongly in adults during stressful times.
What they found was that the economic environment in which you are raised influences how you handle financial problems as an adult. No surprise there. What's eye-opening about their findings is how people from different walks of life act during times of economic crisis.
In a nutshell: Poor people spend more than rich people during difficult economic times.
Stress Response: Save or Spend?
You'd think that when times are tough, everyone's natural instinct would be to pull back on their spending and switch to save mode. It also seems logical to expect that those who grew up in families that struggled financially would be more cautious about money when faced with a weak economy.
A supplementary experiment testing how recession cues affect decisions to save rather than to spend money from a paycheck gave the researchers similar results: Individuals from wealthier backgrounds chose to save for the future, while those from low-income childhoods opted to spend money to improve their current quality of life.
Why Do People Who Grew Up Poor Spend More?
On the surface, spending more when times are tough may just seem foolish, but Ackerman says that people who come from a poor background are behaving rationally according to their psychological instincts.
Ackerman explains it this way: If you grew up poor, your life history may lead you to think your chances of surviving a recession and coming out ahead are very low. Your expectation that your lifespan may be shorter -- again, based on your life history -- means that instead of taking measured steps to preserve the little money you have, you're more likely to take risks and spend money on things like jewelry or cars in order to show off and attract others to "promote reproductive success."
What Was Your Recession Reaction? Not everyone responds in the same way to stress, whether financial or otherwise. What has been your response to the tough economy? How do you think it was influenced by your upbringing?