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Hersh Shefrin : Bank Systems & Technology
Monday, Feb. 14, 2011
Hersh Shefrin, Mario L. Belotti Professor of Finance, says willpower isn’t enough when it comes to sticking to a budget. He made the observation in a recent report calling American consumers “delusional” about their ability to spend less and follow a budget. The article, “Americans Misjudge When It Comes to Spending,” appeared in Bank Systems & Technology, an industry online publication that reported Chase Bank’s survey finding American consumers are mistaken about their ability to spend less and follow a budget.
Chase conducted its survey before and after the 2010 holiday season, and found that only 79% of people who set a holiday shopping budget hit their target, even though 91% claimed to have followed their budget. Shefrin points out that these statistics indicate “Many of these delusional people who missed their budgets underestimated prices or couldn’t resist.”
Shefrin goes on to say, “People face self-control challenges all the time. There are two ways to approach that— a) you can use willpower or b) you can have rules or systems that make you behave in such a way that you don’t have to face the temptation. Willpower just doesn’t cut it for most of us.”
The article examined the Chase “Blueprint” program, set up to help Chase cardholders create plans for paying down large purchases. The bank reported that 89% of customers who create a pay-down plan stick to it and pay off their debt within that timeframe.