Scott RickScott Rick, assistant professor of marketing at the Ross School of Business at the University of Michigan, is an expert on understanding the emotional causes and consequences of consumer financial decision-making. He shares his thoughts on how consumers can protect themselves and prosper in the new year.

Go shopping

I’ve often seen it argued, on bumper stickers and in fortune cookies, that “when the going gets tough, the tough go shopping.” But the concept of retail therapy—shopping to alleviate psychological distress—is often lamented as wasteful and ineffective. Is shopping deserving of such a critique? My colleagues and I recently conducted some experiments to find out. We found that shopping restores a sense of personal control over one’s environment. And this helps to alleviate sadness, which is typically characterized by a feeling that external forces have taken control of one’s life. It’s worth noting that the shopping episode need not be expensive—one experiment revealed that even hypothetical shopping helped to alleviate sadness. But shopping cannot heal all bad feelings. For example, anger is characterized by a feeling that other people have taken control of one’s life, and it seems that no amount of shopping can help to reduce the perceived influence of other people.

Protect yourself

Recent security breaches at many major retailers have highlighted the risks of paying with plastic. Most experts agree that debit cards are particularly risky because thieves can potentially empty out the checking accounts linked to them. That money can be recovered, but only after an investigation that can last up to two weeks. Credit cards are much better at limiting liability, but credit cards can also weaken self-control. It’s less psychologically painful to swipe a credit card than to instantly remove cash from your checking account or your pocket. Also, some research suggests that merely being exposed to credit card logos can cause us to spend more with cash! Visual reminders of credit cards can produce a craving similar to that produced by smelling fresh cookies.

Conduct a financial audit

The new year is a great time to review your financial landscape. Have you set up that flexible spending account yet? Are you still walking around without a will? If you’re in debt, do you know the interest rates of your debts? Our research shows that people are naturally tempted to focus on paying off their smallest debt, even though they’d be financially better off focusing on the debt with the highest interest rate. Financial planning websites (or, for the adventurous, Excel) can show you how much you’re saving by focusing on high-interest debts rather than small debts.

Give

The past few years have witnessed a surge of research demonstrating that donating money, and spending money on others, increases happiness. This pattern has now been documented across many different cultures and income brackets. One cautionary note is in order, though. A great deal of research has shown that performing one good deed provides us, psychologically, with “moral credentials” that license us to misbehave in a subsequent situation. This is not an argument against giving. Instead, by being aware of how our generosity might naturally impair our moral behavior down the road, we might be able to detect and correct this tendency.

Contact Rick at 734-615-3169 or srick@umich.edu. Bio: http://bit.ly/12uYoU5