Spend or save?

Dec 16 2010 by Brian Amble Print This Article

Receiving an unexpected holiday bonus can place a smile on anyone's face - especially in the current climate. But why do some employees choose to spend their bonus immediately while others save this money for the future? What determines how an individual will spend their bonus?

New research from the Kellogg School of Management at Northwestern University has shed new light on the spend vs save conundrum, revealing that extraverted employees may be more likely to spend the money instantly, whereas an introverted one may be more inclined to invest the money for the long haul.

Kellogg postdoctoral fellow and lead author Jacob Hirsh believes the research offers insights on how managers can better understand their employees.

"In one sense, it's good to have extraverted people in the workplace because they are faster to pursue potential rewards and opportunities," Hirsh says. "But at the same time, their focus on immediate rewards may bias them away from longer-term opportunities that take more time to manifest results."

In short, the study suggests how executives-in-charge can better manage extraverted and introverted employees and anticipate how they will react in certain situations.

To explore preferences for immediate versus delayed rewards, Hirsh and his co-authors asked participants to choose between receiving various amounts of money now or in the future. The size of the immediate reward varied in amount from small to medium, while the long-term reward was always large. Although more money could always be made by waiting for the delayed reward, extraverts were more likely to choose the immediate but smaller rewards.

The preference for immediate rewards amongst extraverts was even stronger when they were first put in a positive mood. The study appears in Emotion, a journal of the American Psychological Association.