How Feeling Powerful at Work Can Turn You into a Better Money Manager

The link between power and money in America is strong. Whatever type of money manager you are, feelings of power or of powerlessness affect what you do with money and how you feel about it. Behavioral scientists have been trying to identify exactly how power and money are linked in people's minds, and how a person's feelings of power affect how they manage money.

Several recent studies have demonstrated that how much power a person believes he has affects what kind of money manager he is. The bottom line is, being a good money manager is partly dependent on a belief in one's own power. Here are some of the findings.

USC Study on Power and Saving Behavior

Priyanka D. Joshi and Nathanael J. Fast of the Marshall School of Business at the University of Southern California have found that the perception of oneself as powerful makes a person feel more connected to her future. "They feel they have greater control over their environments and future outcomes," says Joshi.

Joshi and Fast are the authors of a research paper titled "Power and Reduced Temporal Discounting," which explores how feelings of power affect how people perceive smaller immediate monetary gains versus larger future monetary gains.

They found that when people feel as if they have power, they feel more connected to their future, and are more willing to forego immediate gratification in favor of greater future gratification. But when people feel powerless, they feel disconnected from their future and are less likely to defer immediate gratification, even if they're promised a bigger reward for waiting.

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BBC Lab UK's Big Money Test

In 2013, the BBC Lab did a study of 109,000 people (55% men, 45% women, with an average age of 40) about the psychology of money. They found that while financial knowledge is important, much of being a good money manager depends on emotions. In particular, they found that a person's emotional relationship with money affects whether major life events (like job loss, major illness, or the birth of a child) lead to major financial problems.

Additionally, the study found that being a good money manager partly rests on the simple fact of being able to make ends meet - even more than it rests on financial knowledge. This makes sense intuitively, because if a person is unable to make ends meet, he's less likely to feel the sense of power described in Joshi and Fast's research that would prompt him to make monetary decisions that would pay off in the future.

The Journal of Consumer Research on Power and Saving Behavior

Another study, to be published later this year in the Journal of Consumer Research, found that people save more when they feel more powerful. Researchers from Stanford University and Tilburg University "were interested in knowing whether the decision to save or not save money was affected by how someone was feeling during the time they were making a savings decision," wrote Stanford researchers Emily N. Garbinsky and Jennifer Aaker, and Tilburg researcher Anne-Katherin Klesse.

Across five studies designed to manipulate feelings of power in research participants, the researchers found that when people feel powerful, the amount of money they're willing to save for the future increases. Feelings of power were influenced by activities like sitting on taller chairs versus low ottomans, or being told they would be saving money to accumulate financial resources (rather than to spend). The idea that they would be saving money as a means to maintain a current state of power was critical: "When saving no longer affords individuals the opportunity to maintain power, the effect of power on saving disappears," concluded the authors.

Spending, Saving, and Emotion

Money issues and emotion are closely related, and indeed, the parts of the brain controlling emotion and controlling money partly overlap, according to psychologist Valerie Golden, PhD, adjunct professor at Columbia University Medical School. Money issues have the potential to seriously affect relationships and identities, and our beliefs about money and power exist at various levels of awareness. Golden says that being aware of our deeply held beliefs about money helps us to drain emotions of unnecessary power over our lives and spending decisions.

Being a smart money manager means understanding how emotions affect financial decisions, and using the many tools available to take care of practical aspects of money management. Tools like Mint help people understand the nuts and bolts of their personal finances, so they can make smart decisions based less on emotion and more on facts.
