How Wisely Are You Spending Your Money?
A Look at Consumer Wisdom and Reframing Personal Spending as an Investment in Self
Imagine you are in a bookstore by the personal finance section. As you browse the selection, it is likely you see books covering topics such as personal investment, money-saving strategies, planning for retirement, and more. But what you really want is to learn more about personal finance, specifically how to spend your money while balancing your personal happiness and wellbeing.
Material consumption is part of life. But as consumers, we often make frugal decisions because of the financial education and advice we receive throughout our lives from various sources. How often have you stopped yourself from purchasing something because you didn’t think it was worth the money? Or denied yourself an experience because you would rather not spend the money? We are ingrained as consumers to focus so closely on promoting financial wellbeing that we deprive ourselves of personal wellbeing in the process.
So, what does it mean to be a wise consumer? How can you accurately assess whether you are making sound financial decisions rooted in deprivation or balanced with personal happiness and satisfaction?
Dr. Michael Luchs is the Shook Term Distinguished Professor in the area of Marketing and Director of the Jim and Bobbie Ukrop Innovation & Design Studio at William & Mary’s Raymond A. Mason School of Business. His current research is related to these questions and how they connect to consumer wisdom, sustainable consumption, and product design. For the past few years, he and his team have used survey data to test and refine the many dimensions of consumer wisdom. As a result, they developed the first-ever Consumer Wisdom Scale (CWS) which measures the six dimensions of consumer wisdom.
Luchs first developed these six measurements during a 2018 study he conducted. The study surveyed what different consumers considered “"wise” " by their respective communities. Luchs and his team recruited interviewees using a nomination process. He would visit a location, network within the community, and simply ask who the community viewed as “especially good decision-makers, who balanced short and long term, heart and mind, their needs vs. others’ needs.” The six categories were then determined based on a statistical analysis of the data collected through a 100-question survey. His team used a cluster process called “factorization” that condensed as many related, yet distinct factors as possible into six clusters.
Their new survey is relatively simple: 24 questions related to the six measurements with a seven-point scale ranging from never to always. Upon completion, scores are determined for each dimension and compared to the average score for U.S.-based consumers.
As a senior at the Mason School, I was particularly curious about where I fell on this scale. Not only does the research pique my interest from a scholarly standpoint, but also from the view of a consumer about to venture off into a whole new world. I will be living on my own once I graduate, and many consumer decisions that once fell to my parents will fall on to me. Eager to gain insight on my consuming habits, and maybe how I could improve them, I decided to complete the survey and you can see my results below:
| Subscore dimension | Your subscore | US average |
|---|---|---|
| Responsibility: Managing spending relative to personal resources towards achieving a realistically envisioned lifestyle. | 23 | 20 |
| Purpose: Prioritizing discretionary spending to promote personal growth, health, and relationships. | 10 | 16 |
| Flexibility: Being open to alternative forms of consumption, such as renting, sharing, and buying used goods. | 15 | 11 |
| Perspective: Using past experiences and imagined potential future consequences to inform current consumption decisions. | 20 | 18 |
| Reasoning: Seeking and applying sufficient information to guide consumption decisions. | 23 | 20 |
| Sustainability: Favoring pro-environmental and pro-social consumption options. | 12 | 14 |
Think about the last time you were shopping, how many of these dimensions were on your mind when you were browsing? Consumer wisdom is more important than simply spending money effectively. It has much more significant implications for how we live our lives. Luchs found that consumer wisdom has a moderate positive correlation with personal wellbeing, financial wellbeing, and meaning in life for consumers. The study found these effects are significantly distinct from conventional wisdom, meaning that knowledge about consumer wisdom can quite literally improve lives.
This survey provides an invaluable tool in identifying an individual’s personal strengths and weaknesses regarding their own specific consumer wisdom. For example, I score much higher in responsibility than an average American but far lower in purpose. This indicates that I am more invested in saving than spending, even if those financial decisions are detrimental to my personal happiness. Luchs’ findings show us that spending money on things that contribute to our personal growth, health, and relationships ultimately has the most significant positive effect on the quality of our lives.
From a broader perspective, we know that Americans are inundated with an enormous amount of information. Our economy prioritizes choice, and social media promotes materialism. Constrained resources make us choose how to spend our money in a way that will improve our lives. While it may be a small step, a consumer wisdom scale can help raise awareness about deficits in our understanding of the types of purchases that will truly enhance our lives by showing us our strengths and weaknesses compared to an average consumer.
Now, the challenge will be to educate consumers on the CWS scale and retrain their decision-making processes to look beyond a strictly “saving” mindset to that of one that promotes financial spending to be an investment in personal satisfaction and happiness. In addition to continuing his research and understanding on the topic of consumer wisdom, Luchs will pursue educating the general public through methods such as authoring a book on the topic and co-authoring a study that will develop a scale on social media wisdom.
