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How social isolation may encourage financial risk taking

POSTED: 16th January 2013
IN: Personal News
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It may come as a surprise to some, but it appears feelings of social isolation and rejection can cause an individual to make riskier financial decisions.

In a study published in the Journal of Consumer Research, it was revealed individuals are more likely to seek and value money as an alternative to what they want from society when they feel excluded.

It is perhaps paramount to understand how social vulnerability can impact on a person's ability to manage risk and reward in terms of savings, investments and retirement planning. 

And in this study, it was shown that falling out with a friend or breaking up with a partner, for instance, may lead to chancier financial decision-making. 

In one test, participants were asked to remember an occasion when they felt either socially included or excluded.

They were then tasked with choosing between high-odds/low reward and low-odds/high reward gambling options to determine how feelings of rejection or acceptance may impact on their decisions.

As the research stated, "this effect was mediated by the perceived instrumentality of money", suggesting that those who feel excluded look to money to fulfil their social needs.

The study authors wrote: "Consumers are often willing to invest or sacrifice important resources to secure social bonds. In the absence of social support, consumers seek significantly more money to secure what they want out of the social system surrounding them."

So the advice from the researchers appears to be to avoid making significant financial decisions when a romantic relationship ends or someone ignores you at a party or in office conversations.

"Feeling socially rejected triggers riskier financial decision-making," the study authors concluded.

And since deciding how you spend your money is vital for financial longevity, it may be wise to hold off on decision-making at times when you are feeling low or rejected by friends.  

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