Insightology

Do you spend money a little too easily or does it hurt to spend at all? Do you wonder if you are the only one or if other people have the same problem too? Does your gender, age or income have anything to do with whether you are a tightwad or a spendthrift? What effect do marketing offers have on your tendency to hand over the cash, or for that matter, your credit card? Recent research shows that tightwads and spendthrifts do exist and are quite different in these behaviors.

Definitionally a tightwad is one who has trouble spending money, while a spendthrift has the opposite problem. It is not known who predominates in the population, but it is known that they both exist. How can they be identified? The focus of this research was to develop a scale to measure this phenomenon. Such a scale was indeed successfully developed by the researchers (articles aren't usually published by journals if the effort is deemed a failure) and when applied to different populations showed some interesting results about tightwads and spendthrifts. Let's take a tour.

In general, it appears that women are more unconflicted (meaning they have neither tendency dominating) while men are two and a half times more likely to be tightwads than spendthrifts. Loosen up, guys! Older people are more likely to be tightwads than younger people, although it isn't clear from this research if "tightwadiness" grows with age.

Education was also found to be intertwined with this characteristic. Tightwads are somewhat more likely than spendthrifts to have more than a bachelor's degree. But, more interestingly, the majors they are attracted to are different. The three majors which tightwads gravitated towards were engineering, computer science and natural science, while the three majors that spendthrifts found alluring were the humanities, communication and social work.     

Given the nature of this characteristic we would expect that the relationship that tightwads and spendthrifts have with credit cards would differ substantially. And indeed they do. Among credit card users, spendthrifts are three times more likely than tightwads to carry debt. On top of that spendthrifts also carry more debt than tightwads. On the flip side, tightwads are more than twice as likely as spendthrifts to have savings. So spendthrifts spend more and save less. Makes sense, but could this be influenced by how much they earn? Apparently not, as the researchers found little differences in income between the groups. Further, in both groups the tendency to not use credit cards was about the same.      

With these differences in hand the researchers wanted to understand the impact of this characteristic on behavior. So they conducted an experiment. Two groups of people were given exactly the same task and offered a free gift (a boxed set of TV show DVDs) as compensation. Both were told that the set would arrive in four weeks but that they could get it overnight by paying a $5 fee. The only difference is that one group was told it would be a "$5 fee", while the other was told that it would be a "small $5 fee". How do you think the two groups reacted?

In the" small $5 fee" condition, spendthrifts and tightwads are almost equally likely to pay the fee to get overnight delivery. However, in the "$5 fee" condition, spendthrifts are nearly five times more likely than tightwads to spend the money. What is going on here? Apparently the pain of paying is strong enough that the tightwads don't want to spend the money, but is substantially reduced when the expenditure is framed as a "small" expense. Another follow-up experiment confirmed that this explanation was more likely than others for why the differences crop up.

So there you have it, (almost) everything you wanted to know about tightwads and spendthrifts. While it does provide a way to measure this characteristic, this research doesn't say much about its origins or how it affects a person's happiness. It is not clear either whether one side or the other is closer to the natural human state. Perhaps we will have to wait for some spendthrift to sponsor research to answer those questions.

This research was conducted by Scott Rick a visiting professor of operations and information management at the Wharton School of the University of Pennsylvania, Cynthia Cryder is a doctoral student and George Loewenstein is the Herbert Simon Professor of Economics and Psychology at Carnegie Mellon University, and was published in the Journal of Consumer Research in 2007.