Feelings of Wealth

https://www.psychologytoday.com/blog/ulterior-motives/201202/what-makes-you-feel-rich

In another set of studies, people were asked to imagine that they were interested in making a significant purchase, but that they would have to borrow money to make it.  People are often in that situation when buying cars, furniture, or appliances.  They were shown pairs of profiles like the ones in the study I just described and asked which person would be more likely to borrow money (assuming that each could borrow at the same interest rate).

The results were similar to those in the previous study.  When the profiles described people with a positive net worth (more assets than debt) they were more likely to borrow money when they currently had low debt than when they currently had high debt.  But, when the profiles described people with negative net worth (more debt than assets), they were more likely to borrow money when they currently had high debt (and also had many assets) than when they had low debt (and also few assets).

That means that financial decisions like the willingness to make a big purchase or to take on more debt are based on people’s current feeling of how well off they are.  This feeling ought to be based on net worth (assets minus debt).  But it isn’t.

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