The Effects of Circular and Linear Time Orientations on Personal Savings Estimates and
Savings Behavior
Abstract
We examined the effects of circular and linear time orientation on personal savings estimates and
savings behavior. Results from two experimental studies revealed that people who applied a
savings approach emphasizing circular time orientation, compared to linear time orientation,
provided higher personal saving estimates and saved more money.
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Extended Abstract
A low personal savings rate has been an important concern from economic, social and
policy standpoints, especially as the U.S. savings rate dipped into negative territory in 2005
(Guidolin and Jeunesse 2007) and remained there until unease from the recent economic down
turn brought it back up to positive levels in the fourth quarter of 2009 (BEA 2010). Nevertheless,
there is still a wide range in personal savings rates across consumers. Some consumers are able
to save a significant amount of their incomes, whereas others can barely make it from paycheck
to paycheck. Moreover, such differences cannot be explained solely by differences in income
(e.g., Masson, Bayoumi and Samiei 1998). It is therefore important to examine factors affecting
personal savings of consumers. Prior research has shown that the temporal frame such as length
of duration and delay used in decision making is crucial to personal finance tasks (e.g., Ulkumen,
Thomas, and Morwitz 2008; Tam and Dholakia 2010).
We examined effects of circular and linear time orientation on personal savings estimates
and savings behavior. The distinction between circular and linear time orientation originates
from people’s view of life. Under a linear time orientation, there is a past, present, and future,
and time is separable into discrete compartments and moves toward the future in a linear fashion.
Under the circular time orientation, in contrast, time is not perceived as a straight line stretching
from the distant past to the far future, but rather, it is seen as a circular system in which the same
events are repeated according to some cyclical pattern (Graham 1981). The “discrete
compartment of time” view in the linear time orientation results in a difference in how much
people focus on the future versus the present. Individuals under a linear time orientation are more
future oriented and less present oriented than those under circular time orientation (Bergadaa
1990). Linear and circular time orientations also differ in how goals are approached.
Based on the three different characteristics between linear and circular time orientation,
(1) the overall progression in life, (2) a future versus present orientation, and (3) a planning mind
set, one would expect to see higher savings rate from people with a linear time orientation than a
circular time orientation because linear time orientation is expected to put a stronger emphasis on
future retirement needs and enable formulation of more concrete plans to accumulate personal
savings. Future goals should determine present actions and people with linear time orientation
should plan for the future and thus behavior in the present should be based on making forward
progress towards achieving long-term goals. Yet, in reality, many empirical surveys show that
people that tend to adopt a linear time orientation save much less than those who tend to adopt a
circular time orientation (Horioka and Wan 2008; Caillois and McKeon, 1963).
We draw on Resource Slack Theory (Zauberman and Lynch 2005) and Construal Level
Theory (Liberman and Trope 1998) to explain this anomaly and to better understand the effects
of circular and linear time orientations on savings estimates and personal savings. Theoretically,
resource slack as operationalized by future optimism and level of construal of the savings task
are likely to be affected by time frames for which savings estimates are given. In the context of
saving behavior, Resource Slack Theory suggests that people think they will be able to save
more in the distant future than the near future because of the notion of future optimism. Future
optimism is expected to result in a higher estimate of saving for distant future time periods than
near future time periods. Linear time orientation is more future oriented and circular time
orientation is more present oriented. When future optimism affects personal savings estimates,
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we expect higher savings estimates to result from linear time orientation than circular time
orientation. However, once specific savings plan (e.g., saving 10% of paycheck) is set, a circular
time orientation that has lower level of future optimism and focuses on tasks on hand could save
actually more than linear time orientation.
Construal Level Theory posits that temporal distance changes decision makers’ responses
to future events by changing the way they mentally represent those events (Trope and Liberman
2003) and provides useful insights into the role of savings task construal under linear and
circular time orientation. This theory suggests that in the case of circular time orientation,
decision makers think of saving activities and estimation tasks more concretely using lower level
construal, in comparison to linear time orientation where personal savings is considered in more
long term progress with higher level construal. Consequently, under circular time orientation,
people would be thinking of more specific ways in which they will be able to save money and
sticking to the more mundane savings activities set for each paycheck. Construal of the savings
task in detailed, concrete (vs. abstract) terms for circular time orientation is expected to lead to a
greater personal savings when compared to linear time orientation.
For these reasons, we expected circular time orientation would result in higher level of
savings estimates and actual personal savings. Two longitudinal experimental studies were
conducted. Study 1 found that people who applied circular time savings method provided higher
personal savings estimates and indeed saved more in reality, compared to people who applied
linear time savings method. Study 2 tested future optimism and construal level as mediators in
the effects of circular and linear time orientation on personal savings estimates and savings
behavior. Study 3, using a longitudinal method, is currently underway.
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