Research

People evaluate their own wealth differently from how they evaluate the wealth of others. Across six experiments, we find evidence that people focus disproportionately on debt when thinking about their own (vs. another person's) wealth. In Experiments 1–3, participants predicted how wealthy they or someone else would be in one year, assuming they had the same amount in assets and debt today. While participants were generally optimistic about the future, they believed debt would shrink faster for themselves than for others. Participants focused more on paying down debt than growing assets when thinking about their own wealth. Further, when asked to consider what they would do with a windfall, they allocated more towards repaying debt than they believed others would. In Experiments 4 and 5, participants assessed their own wealth or that of another person after purchasing a car or a house and borrowing to do so. In every case, participants considered others (vs. oneself) as better off financially when holding the price and amount borrowed constant. As debt increased, the gap between self and others widened. In Experiment 6, a separate group of participants also reported their beliefs about how others might see them. When actively considering another person's perspective, people saw themselves as wealthier. We conclude by discussing the role that different evaluations of wealth might play in patterns of conspicuous consumption.

This paper investigates the puzzling behavior of "co-holding," in which individuals simultaneously maintain low-yield liquid assets and high-interest revolving debt. Using data from a large retail bank, we observe over 7% of all customers and 23% of customers with a credit card co-hold amounts greater than $500. Despite the financial implications, co-holders appear to deliberately engage in this behavior. A large-scale field experiment (n = 125,328) reveals that informing customers about their co-holding behavior and its associated costs does not significantly alter co-holders' debt repayment behavior. We propose a psychological explanation for co-holding, rooted in the principles of mental accounting. Our analysis of transaction-level data and a field survey suggests that co-holders mentally separate their spending into 'debit' and 'credit' categories. Specifically, we find that a preference for using debit cards for everyday transactions is correlated with co-holding. Furthermore, we provide experimental evidence that this preference can cause consumers to co-hold. Our online experiment shows that inducing a preference for debit spending can lead consumers to retain higher asset balances and pay off less of their debt. A mental categorization of expenses as 'debit' or 'credit' could, therefore, explain why some consumers simultaneously save and borrow. More broadly, our findings contribute to the understanding of how consumers manage their assets and debt, suggesting that everyday payment preferences may influence decisions to save and borrow. This paper offers valuable insights for both a theoretical understanding of co-holding and practical applications in the design of financial products and services.