Assets as Stress Suppressor?

Stress sucks. The American Psychological Association (APA) reports that a majority of American adults are stressed out with nearly a quarter experiencing extreme levels of stress. Seventy-six percent (76%) of adults claim that money is a source of their stress. Sixty-five percent (65%) say the economy is a source of their stress. Fifty-two percent (52%) say that housing costs are a source of their stress. Stress caused by economic worries is termed “economic strain.” A new research brief by David Rothwell and Anna Goren of McGill University explores the relationship between asset holdings and economic strain.

Based upon evidence from a recent study by Rothwell and Han Chang-Kuen of the National University of Singapore, Rothwell and Goren conclude that asset holdings are potentially a stress suppressor for low-income families. The study found that families with asset holdings (home, liquid savings or retirement funds) had decreased levels of family economic strain four years later (measured by asking if the family could afford a variety of basic needs). They found that there was both a direct relationship between asset holdings and the decreased family economic strain, and an indirect relationship, via a reduced chance of experiencing a stressful event like employment loss or income decline. There’s a little picto-gram in the brief mapping the relationships.

While Rothwell and Goren acknowledge that the exact reason for why assets suppress economic strain is not available at this time, one point is solidly established – having assets means less stress. Why is this important? An emerging body of psychology, established primarily by Eldar Shafir of Princeton and Sendhil Mullainathan of Harvard, posits that stress brought upon by scarcity makes it harder to exert willpower -- the ability to make an optimal decision though the “right” option may be known. As such, reducing scarcity can help enhance a person’s willpower to make more beneficial decisions. (There’s a lot more to this very interesting discussion of “willpower” and its implication for welfare policy, but I’ll let David Brooks and Jamie Holmes give the full shtick.)   

Beyond the ivy walls, people on the ground also see the benefits of asset holdings and willpower. The APA’s Stress in America report says that respondents see a link between money and willpower when trying to make positive lifestyle changes for their health:  

“While the majority of adults (70 percent) believe willpower — defined by respondents as self-control/resisting temptations/ urges, sticking to a decision and accomplishing a goal — is something that can be learned, many saw money as an important factor in willpower. Four in 10 adults said money would help them improve their willpower.”

Based on the conclusion that assets are a stress suppressor, Rothwell and Goren prescribe short-term discretionary asset building (aka precautionary savings) policies as a way to reduce the long-term effects of economic strain. Bank On and AutoSave are featured policies that fit this prescription, the Saver’s Bonus would fit here too. The full brief is now available here on our website.