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Consumer economics and family economics: the charge, the response.

A "timeless" charge to consumer economics and family economics is identified. In light of the charge, the area is examined with particular emphasis on scholarly activity. It is suggested that scholarship in the area is diffuse and often addresses parts of issues. This creates concerns as to whether the historical charge is being met.

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Consumer economics and family economics (CEFE) scholars thoughtfully examined the future and identity of CEFE a decade ago. In the early 1990s, Widdows and Bryant (1993) shared their observations in an article titled "Consumer and Family Economics: A Justification." Similar articles appearing in Advancing the Consumer Interest during this time period include Bryant and Metzen (1991), "Is the Crack Closing?"; Zick and Widdows (1992), "Turning the Ebbing Tide of Consumer Studies Enrollments"; and Feinberg, Hong, and Widdows (1994), "Successful Consumer Studies Programs."

THE "TIMELESS" CHARGE

In the early 1900s, Richards and Mitchell raised concerns about the "wise use of money." Richards (1915, 140) noted that welfare could be increased as much through "wise household management" as through increased wealth. In a similar vein, Mitchell (1912, 269) suggested that people would "gain as much from wiser spending as from increased earnings."

Richards and Mitchell wrote at a time when basic food wholesomeness and monopolistic trusts were important consumer issues. During this era, the American frontier was declared "dead" following the 1890 census, the Industrial Revolution spread to consumer products, and Americans moved from the farm to the city where they found work in factories. This led to an environment in which consumers had to make purchase decisions unlike those made by previous generations. Prior to the early 1900s, most household items were produced in the home or by a tradesperson in the local community. Starting in the early 1900s, consumers frequently purchased from local retailers products, which were manufactured at a distant location by unknown individuals.

Early twenty-first century consumers exist in an environment more complex than, but similar to, that of early twentieth century consumers. The modern consumer faces problems related to identity theft as well as basic food wholesomeness. While contemporary consumers may not wrestle with the purchase of a "new fangled" thing called a refrigerator, they do wrestle with choosing between dozens of different brand/model/seller combinations of refrigerators--ice makers, computerized voices informing of problems, side-by-side, top or bottom freezer, water available through the door, and so on. In addition to more product choices, the consumer of the twenty-first century must manage a 401k portfolio in a manner that ensures adequate wealth for retirement. Nearly 100 years ago, Richards (1915) stressed the importance of using resources wisely. This is as true today as it was then.

RESPONSE TO THE CHARGE

Research is fundamental to efforts designed to help consumers use resources wisely. This research must form a relevant, recognizable body of knowledge, which is then translated into policy recommendations and education programs that encourage wise resource use.

CEFE research, however, tends to be scattered across a wide variety of outlets, leading to no clearly defined body of knowledge. Examination of the ISI Journal Citation Reports, Social Sciences Edition (data from about 1,500 journals), reveals that the only journal in which CEFE scholars regularly publish is the Journal of Consumer Affairs. Those journals in which CEFE scholars occasionally publish, or could possibly publish, are generally listed in the business and economics subject categories. Much CEFE scholarship is published in journals that are not part of the scholarly mainstream, making this research difficult to find.

A second concern is the emergence of undergraduate programs, which tend to differ from the research foci of CEFE scholars. The topic list for the Certified Financial Planner Certification Examination includes few topics on which CEFE scholars regularly conduct research. The picture is worse for consumer affairs. In this area, no body of knowledge has been identified, although an attempt was made to do so 10-15 years ago. What often happens in undergraduate programs with a focus not consistent with a scholarly focus is courses taught by individuals who are not particularly knowledgeable on a topic, who do little or no research on a topic, or who have a technical, but not a scholarly, understanding of a topic.

A third concern is the lack of "fuel" for outreach activities, particularly Cooperative Extension, which has a long, proud tradition of research-based education. The body of CEFE research, however, is not adequate to support informed outreach activities. This can lead to educational programs addressing problems that are perceived as important, while in actuality, this may not be the case.

While concerns exist with respect to the lack of a coherent body of CEFE scholarship, undergraduate programs with a focus different from that of research programs, and an inadequate research base for outreach, an even greater concern is a lack of the "right" kind of research. In an applied area such as CEFE, it is important that research identifies both suboptimal decisions and the behaviors leading to suboptimal decisions. Research may indicate that consumers are not making appropriate (or optimal) use of flexible spending accounts. While this is interesting and useful information, to facilitate behavioral changes, it is important to know why consumers are not making optimal use of such accounts. If policy recommendations and educational programs are based only on problem identification research, the result could be hortative in nature, not leading to improved consumer behaviors. However, if policy recommendations and educational programs are based on the identification of suboptimal decisions as well as related consumer behaviors, the likelihood of behavioral adjustments leading to better resource use increases.

In an article in the TIAA-CREF Participant (2003, 7), the author noted that "[w]e all like to think of ourselves as rational and logical. But in investing--as in life--our emotional inclinations, ingrained thought patterns, and psychological biases color the way we perceive the world and the way we make decisions ... behavioral finance takes into account the human tendency to behave irrationally when making investment decisions ... [and is] essentially economics based on realistic descriptions of the actual behavior of people ... Fortunately, by understanding some of the factors that influence our decision-making, we can make choices that are more closely aligned with our goals."

Support for the importance of research examining consumers' behaviors is not limited to the popular press. Schepanski and Shearer (1995) suggested that prospect theory can explain the phenomenon that individuals who underwithhold income taxes are more likely to engage in noncompliance than those who overwithhold. Their basic hypothesis is that these withholding positions differentially affect risk attitudes. Prospect theory suggests that when a situation is perceived as a loss, consumers tend to be risk seekers, and when a gain, they tend to be risk avoiders. Overwithholding is perceived as a gain, and underwithholding is perceived as a loss. This suggests policy recommendations and educational programming different from that based on a rational decision-making framework where compliance is expected to be independent of the withholding situation.

In a study examining the use of flexible spending accounts, Schweitzer (1999) considered two possible mistakes--overcontribution and undercontribution. Overcontribution occurs when consumers put too much money into a flexible spending account and lose it because of the "use-it-or-lose-it" provision of the Internal Revenue Service code. Undercontribution occurs when too little is put into a flexible spending account and health care expenses must be paid using after-tax dollars. Schweitzer studied the issue using an experiment in which subjects compared scenarios where $200 was overcontributed translating into $120 posttax dollars (40% tax rate including income tax and Social Security) and $200 was undercontributed. He found that 61% of the subjects rated overcontribution as the greater mistake, 28% rated undercontribution as the greater mistake, and 11% rated the mistakes as equally bad. These findings are consistent with prospect theory since overcontribution is perceived as a loss and undercontribution as a foregone gain.

Bowman, Minehart, and Rabin (1999) used data from five countries to study the inconsistency of consumption changes in response to income changes. Their model, which is based on prospect theory, explains Duesenberry's relative income hypothesis. Bowman and his colleagues reported that consumers facing an uncertain future income resist responding to bad news by decreasing consumption, while there is less resistance to increasing consumption in response to good news. This is consistent with prospect theory-based research, which suggests that people tend to renormalize gains quickly and losses slowly. Imagine the implications for consumer education and policy--consumers spend uncertain income increases and ignore uncertain income decreases!

CONCLUSION

Richards (1915) stressed the importance of using all household resources wisely. In contemporary society, this can be done by identifying consumers' suboptimal decisions and why consumers make these suboptimal decisions. This leads to policy recommendations and educational programs that modify "bad" behaviors, thereby enabling consumers to make better decisions, which are more consistent with their goals. This research must, however, be published in recognized journals and form a recognizable CEFE body of knowledge. This body of knowledge must not only inform outreach efforts but also inform undergraduate and graduate education.

REFERENCES

Bowman, David, Deborah Minehart, and Matthew Rabin. 1999. Loss Aversion in a Consumption-Saving Model. Journal of Economic Behavior and Organization, 38 (2): 155-178.

Bryant, W. Keith and Edward J. Metzen. 1991. Is the Crack Closing? Advancing the Consumer Interest, 3 (2): 5, 39.

Feinberg, Richard, Gong Soog Hong, and Richard Widdows. 1994. Successful Consumer Studies Programs. Advancing the Consumer Interest, 6 (2): 26-27.

Mitchell, Wesley C. 1912. The Backward Art of Spending Money. The American Economic Review, 2 (2): 269-281.

Richards, Ellen H. 1915. The Cost of Living. New York: John Wiley.

Schepanski, Albert A. and Teri L. Shearer. 1995. A Prospect Theory Account of the Income Tax Withholding Phenomenon. Organizational Behavior and Human Decision Processes, 63 (2): 174-186.

Schweitzer, Maurice E. 1999. The Construction of Mental Accounts in Benefits Decision Making. Benefits Quarterly, 15 (1): 52-56.

TIAA-CREF. 2003. The Psychology of Investing. TIAA-CREF Participant, August.

Widdows, Richard and W. Keith Bryant. 1993. Consumer and Family Economics: A Justification. Advancing the Consumer Interest, 5 (1): 33-36.

Zick, Cathleen D. and Richard Widdows. 1992. Turning the Ebbing Tide of Consumer Studies Enrollments. Advancing the Consumer Interest, 4 (2): 19-23.

Loren V. Geistfeld is a professor in the Department of Consumer Sciences at Ohio State University (geistfeld.l@osu.edu). An earlier version of this paper was presented at the Eastern Family Economics/ Resource Management Association Conference, Tampa, Florida, February 27-28, 2004.
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Author:Geistfeld, Loren V.
Publication:Journal of Consumer Affairs
Geographic Code:1USA
Date:Dec 22, 2005
Words:1730
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