Study Finds People Save More Money with Just One Savings Account – And I Don’t Buy It
Personal finance expert and managing editor for www.GoBankingRates.com , Casey Bond, evaluates a new study’s claim that consumers with one savings account save more money than those with several. In her op-ed, Ms. Bond points out the multiple consumer benefits of having more than one savings account and explains why she believes the study must be read with a grain of salt.
EL SEGUNDO, CA (April 21, 2013) – The online personal finance community has been abuzz since new research from Utah and Kansas Universities was released Wednesday. According to the authors, including KU School of Business assistant professor, Promothesh Chatterjee, everything we thought we knew about saving has been wrong — the key to saving more money is having just one savings account, not several.
“Utilizing work on motivated reasoning and fuzzy-trace theory,” the study’s abstract states, “we suggest that multiple accounts engender fuzzy gist representations, making it easier for people to generate justifications to support their desired spending decisions.”
That entire supposition sounds pretty “fuzzy” to me. Here’s why.
Savings Account Study
The press release announcing the new findings states a total of 566 people participated in four studies, all of which “presented participants the opportunity to earn money across tasks and spend it on different products.” The conclusion researchers drew from the four studies was that they “collectively indicated a higher rate of saving among individuals who maintain one account versus those who have multiple accounts.”
In other words, by dividing savings across several accounts, participants in the study were able to more easily justify spending money from one account because there was plenty elsewhere. Those with just one savings account, on the other hand, could see exactly how much money they had at all times and couldn’t rationalize overspending as easily.
“Basically, people look for an excuse to spend, and vague information facilitates this,” Chatterjee explains, “And having multiple accounts provides just enough vagueness to do the trick.”
But does it really?
While the findings from this study (which will appear in the May 2013 edition of Organizational Behavior and Human Decision Process) are certainly interesting, I don’t trust the validity of the conclusion.
The participants in the study weren’t using “real” money.
According to the New York Times Bucks Blog, the studies’ subjects were all students who received college credit for participating. Ignore, for a moment, the fact that we’re applying a generalization about how people manage money based on the behavior of a bunch of college kids. Then consider that the participants were given “free” money to play with, no more than $100 per participant.
Might they have treated the extra cash differently than they would, say, a real paycheck? Their livelihood did not depend on how they managed this money, with the study more of a game than a look into real-life savings habits.
Correlation does not imply causation.
Thinking back to my college science classes, one big lesson I learned was that just because two variables are correlated does not mean one is the cause of the other. Just because study participants with one savings account saved more money does not mean having just one account was the cause of their behavior. Researchers need to dig deeper into the data and study a broader sample before drawing those kinds of conclusions.
Multiple Benefits of Having Multiple Savings Accounts
FDIC Insurance: It’s important to remember that deposits in FDIC-insured banks (and NCUA-insured credit unions) are federally backed in case the institution goes under. However, that federal protection is limited to $250,000 per depositor, per institution.
That means if you have more than that amount in any one checking, savings, money market or CD account, anything over $250k is unprotected and subject to loss. Think that’s unlikely? I used to believe my bank would never fail, too — until it did.
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