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Can spenders ever invest well?

By Sheyna Steiner · Bankrate.com
Friday, January 11, 2013
Posted: 12 pm ET

Is there a link between spending behavior and investing?

In the April 2008 issue of the Journal of Consumer Research, researchers Scott Rick, from the University of Pennsylvania, and Cynthia Cryder and George Lowenstein, both from Carnegie Mellon University, developed the "Spendthrift-Tightwad scale" based on their questions to over 13,000 consumers. They found that tightwads experience pain when it comes to paying while spendthrifts don't seem to feel enough pain.

According to the study, 15 percent of consumers are spendthrifts, 60 percent fall in the middle and 25 percent are tightwads.

Spending behavior and investing

The study on tightwads and spendthrifts differentiated between frugality, in which savers derive pleasure from saving, and being a tightwad, in which the afflicted feel pained at the thought of spending money.

With tightwads drowning in angst over purchases, it's not hard to imagine that they could feel similar pangs over investment losses. At the far end of the spectrum, die-hard spendthrifts may not have enough money for investing after frittering everything away on impulse buys.

But risk-taking behavior in one area doesn't always translate to high-risk behavior in other areas, according to a story on PsychCentral.com, "Risk-taking more complex than expected."

According to the story, people with more experience with certain risky situations may perceive them as less risky.

People may be able to mitigate their feelings about money by working to change their habits on their own. Or some psychotherapists work with clients about money and spending habits, which can be as fraught with hidden motives and meanings as our behavior in other areas. Financial planners can also help clients through spending problems.

"Financial behavior is conditioned over time and usually leads to consistent patterns. They are habits, and first we make our habits, and then our habits make us. It's amazing because you can ask people what they did with their very first paycheck, and if they went out and spent it all, they’re very likely to still be a big spender today. For those who squirreled it away for a rainy day, they're highly likely to still be savers today," says Robert Laura, president of Synergos Financial Group.

Are you a spender or a saver? If you're either of the extremes, do you feel like it's adversely affected your investment portfolio?

Follow me on Twitter: @SheynaSteiner.

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