With Great Power Comes Financial Responsibility: The Effect of Power on Saving

The savings rate among the poor is very low. Approximately 10% of all U.S. households, most of which live in poverty, lack formal saving tools (Bertrand, Mullainathan and Shafir 2006). Without banks, they must rely on alternative financial means such as check cashers, payday loans, or borrowing from friends, which can have serious ramifications for spending and savings issues. With this in mind, we sought to investigate why people who feel poor tend not to save as well as ways to encourage saving behavior. In doing so, we shed light on a new mechanism that explains the link between wealth and saving: feeling powerful.