Moritsugu, Vera, Jacobs, Kennedy. Psychology of Adjustment. by John Moritsugu & Elizabeth M. Vera & Jane Harmon Jacobs & Melissa Kennedy

Author:John Moritsugu & Elizabeth M. Vera & Jane Harmon Jacobs & Melissa Kennedy
Language: eng
Format: epub
Published: 2016-09-13T13:30:21.710132+00:00

Reflection Questions

How many credit cards do you have?

How did you get them and what are their interest rates?

What of loans and their terms?

What typical banking behaviors do you have? Are there things you can do to develop better banking habits?

Saving

Thaler (1990) created the “simple, elegant, and rational” life cycle theory of savings. In this theory, there are three phases to our saving behaviors based on our age. For the young, who do not make much, savings is low and borrowing is high. For the middle-aged, savings grows in anticipation of future retirement needs. In old age, there is spending of what has been saved. According to Thaler (1990), this is the simple, obvious, but inaccurate description of saving. The model makes several assumptions: that people live within their means, that there is rainy day fund put aside, and that saving for retirement is automatic. Yet according to Thaler, research has shown these assumptions are incorrect. For example, in looking at individuals with increases in income, Flavin (1981) found that increases in spending went up in an unreasonable manner. People did not consider what the increase meant to their total lifetime income, they just spent. They spent for the moment without planning for the future.

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