The Effects of Circular and Linear Time Orientations on ...



The Effects of Circular and Linear Time Orientations on Personal Savings Estimates and

Savings Behavior

Abstract

We examined the effects of circular and linear time orientation on personal savings estimates and savings behavior. Results from two experimental studies revealed that people who applied a savings approach emphasizing circular time orientation, compared to linear time orientation, provided higher personal saving estimates and saved more money.

Extended Abstract

A low personal savings rate has been an important concern from economic, social and policy standpoints, especially as the U.S. savings rate dipped into negative territory in 2005 (Guidolin and Jeunesse 2007) and remained there until unease from the recent economic down turn brought it back up to positive levels in the fourth quarter of 2009 (BEA 2010). Nevertheless, there is still a wide range in personal savings rates across consumers. Some consumers are able to save a significant amount of their incomes, whereas others can barely make it from paycheck to paycheck. Moreover, such differences cannot be explained solely by differences in income (e.g., Masson, Bayoumi and Samiei 1998). It is therefore important to examine factors affecting personal savings of consumers. Prior research has shown that the temporal frame such as length of duration and delay used in decision making is crucial to personal finance tasks (e.g., Ulkumen, Thomas, and Morwitz 2008; Tam and Dholakia 2010).

We examined effects of circular and linear time orientation on personal savings estimates and savings behavior. The distinction between circular and linear time orientation originates from people’s view of life. Under a linear time orientation, there is a past, present, and future, and time is separable into discrete compartments and moves toward the future in a linear fashion. Under the circular time orientation, in contrast, time is not perceived as a straight line stretching from the distant past to the far future, but rather, it is seen as a circular system in which the same events are repeated according to some cyclical pattern (Graham 1981). The “discrete compartment of time” view in the linear time orientation results in a difference in how much people focus on the future versus the present. Individuals under a linear time orientation are more future oriented and less present oriented than those under circular time orientation (Bergadaa 1990). Linear and circular time orientations also differ in how goals are approached.

Based on the three different characteristics between linear and circular time orientation, (1) the overall progression in life, (2) a future versus present orientation, and (3) a planning mind set, one would expect to see higher savings rate from people with a linear time orientation than a circular time orientation because linear time orientation is expected to put a stronger emphasis on future retirement needs and enable formulation of more concrete plans to accumulate personal savings. Future goals should determine present actions and people with linear time orientation should plan for the future and thus behavior in the present should be based on making forward progress towards achieving long-term goals. Yet, in reality, many empirical surveys show that people that tend to adopt a linear time orientation save much less than those who tend to adopt a circular time orientation (Horioka and Wan 2008; Caillois and McKeon, 1963).

We draw on Resource Slack Theory (Zauberman and Lynch 2005) and Construal Level Theory (Liberman and Trope 1998) to explain this anomaly and to better understand the effects of circular and linear time orientations on savings estimates and personal savings. Theoretically, resource slack as operationalized by future optimism and level of construal of the savings task are likely to be affected by time frames for which savings estimates are given. In the context of saving behavior, Resource Slack Theory suggests that people think they will be able to save more in the distant future than the near future because of the notion of future optimism. Future optimism is expected to result in a higher estimate of saving for distant future time periods than near future time periods. Linear time orientation is more future oriented and circular time orientation is more present oriented. When future optimism affects personal savings estimates, we expect higher savings estimates to result from linear time orientation than circular time orientation. However, once specific savings plan (e.g., saving 10% of paycheck) is set, a circular time orientation that has lower level of future optimism and focuses on tasks on hand could save actually more than linear time orientation.

Construal Level Theory posits that temporal distance changes decision makers’ responses to future events by changing the way they mentally represent those events (Trope and Liberman 2003) and provides useful insights into the role of savings task construal under linear and circular time orientation. This theory suggests that in the case of circular time orientation, decision makers think of saving activities and estimation tasks more concretely using lower level construal, in comparison to linear time orientation where personal savings is considered in more long term progress with higher level construal. Consequently, under circular time orientation, people would be thinking of more specific ways in which they will be able to save money and sticking to the more mundane savings activities set for each paycheck. Construal of the savings task in detailed, concrete (vs. abstract) terms for circular time orientation is expected to lead to a greater personal savings when compared to linear time orientation.

For these reasons, we expected circular time orientation would result in higher level of savings estimates and actual personal savings. Two longitudinal experimental studies were conducted. Study 1 found that people who applied circular time savings method provided higher personal savings estimates and indeed saved more in reality, compared to people who applied linear time savings method. Study 2 tested future optimism and construal level as mediators in the effects of circular and linear time orientation on personal savings estimates and savings behavior. Study 3, using a longitudinal method, is currently underway.

References

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