How to Think About Self-Control

“Self-control” is a catch-all label for resisting all sorts of temptations, including overspending.  According to a new study, controlling overspending can be broken down into three distinct behaviors:

• Setting goals such as buying a house or saving money.
• Monitoring bank statements to systematically track where your money goes.
• Committing to the goal in the face of short-term temptations to spend.

Data for the study came from a nationally representative U.S. survey of households over age 50. The survey has extensive information about the households’ finances and about each individual’s resolve to set goals, track their finances, and carry out their commitments – whether financial or non-financial.

Households lacking self-control disproportionately have lower net worth – no surprise there.  The largest effect is on their liquid financial assets, such as checking and savings accounts and IRAs. Impulsive consumption “is more likely to have an immediate impact on liquid holdings than on illiquid assets,” such as property, said the researchers, who are from Goethe University in Frankfurt.

More interesting is their analysis of the role played by self-control’s three individual components.  The study found that the third ingredient – the ability to stick to commitments – draws the darkest line between success and failure in accumulating net worth.

But the researchers also divided net worth into “real wealth” – homes, other property, or vehicles – and financial wealth, which is more easily liquidated than property.  Commitment again proved most important in determining whether people own property.  But when it comes to accumulating financial wealth, monitoring one’s finances plays the largest role.

Everyone talks about self-control. This study clarifies what it is.