Wealth Perceptions Study: Net Worth, Assets, Debt Play Role
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If a poor man takes out a loan and buys a car, he feels wealthier. If a rich man passes on the loan and the car, he also feels wealthier.
A new study appearing in the journal Psychological Science attempts to identify what affects perception of wealth – whether it be net worth, assets, or debt.
"People's perceptions of wealth vary not only as a function of their net worth, but also of the amount of assets and debt they have," said Princeton University psychology graduate student Abigail B. Sussman, who wrote the study with Princeton professor Eldar Shafir.
Sussman and Shafir designed experiments to test perceptions of wealth, and when net worth was positive, more respondents called those with less debt wealthier than those with higher debt and more assets.
By contrast, those in the red were perceived as wealthier when they had higher assets, even though accompanied by higher debt.
"People generally like assets and dislike debt, but they tend to focus more on one or the other depending on their net worth," said Sussman. "We find that if you have positive net worth, your attention is more likely to be drawn to debt, which stands out against the positive background. On the other hand, when things are bad, people find comfort in their assets, which get more attention."
The researchers note their findings may help predict the economic behavior of individuals dealing with debt.