Bolton and Scott: Smart Money

Lisa E. Bolton and Maura L. Scott

Two renowned consumer researchers sit down for a coffee and together explain how consumers can take an evidence-based approach to making good financial decisions.


Maura: Lisa, if you had to identify your ‘number one’ piece of consumer finance advice, what would it be?

Lisa:  My first piece of advice is to avoid debt if at all possible – which might sound obvious (even obnoxious in these difficult times) but I think it has to be said. There are some cases where debt can make sense, for example, exceptional purchases like buying a house. But, as a general rule, debt is not your friend – and, when it comes to debt, interest is the enemy! Perhaps you remember a high school class showing the upward curve of a debt with compounding interest? You do not want to climb (and pay off) that hill! I think people tend to underestimate the growth of debt[i]and their ability to handle it, which is why avoiding debt is my #1 tip.

Maura:  But what if it’s too late for tip #1? Accumulating debt can happen to reasonable, hard-working people. Many folks already have a number of debts, perhaps some combination of house, car, student loan, and credit card. What can you do if this happens? Many people also live paycheck to paycheck and are not able to cover a $400 emergency expense with cash.[i]When a big-ticket item like an unexpected car repair happens, they may feel forced to cover the expense with credit. At check out, employees may offer a store credit card, which offers a small discount on the purchase, while also incorporating a high interest rate on the card. In such emergencies, consumers may respond positively to such impulse purchase offers. As a result, debt accumulates – indeed, the average US household debt is $51,900 across mortgage, student loan, credit card and other debts.[ii]And at the same time, more than a third of households have annual incomes of less than $40,000.[iii]In addition, when the budget is already tight, it may be tempting to pay the minimum on what is owed. As the total balance grows, consumers might experience a so-called “what the hell” effect,[iv]where they begin to purchase other items on credit as well, which are added to the seemingly insurmountable total.

Here my advice is to look very carefully at interest rates (remember, interest is the enemy when it comes to debt). It can be motivating to pay down the smallest debt first to get rid of it, but it may be more rational to pay down the debt with the highest interest rate first.[v][vi]  Of course, you should also pay attention to late fees, whether your debt is secured or not (e.g., against a house), and so on. If you have a lot of debts, it might make sense to consolidate – but debt consolidation loan marketing can undermine your good intentions, so educate yourself and read the fine print first.[vii][viii]

Lisa:  That last tip leads to another piece of advice: Credit is debt!  Not everyone thinks of credit in this way, and it bears remembering for a couple of reasons. First, as you mention, Maura, many people are unable pay their credit cards off in full each month and instead carry a balance. This is one way debt starts to accumulate, especially because credit card interest rates can be very high (enemy alert! really steep hill to climb!). And if a payment is missed, those rates can go higher. Second, spending money with a credit card is very easy and convenient, which can get you into trouble. And that trouble can have a negative impact on credit scores[ix]. These cards often tout perks such as points or cash back—which may seem beneficial, but remember that they are also in place to encourage accelerated spending.[x]If you’re someone who racks up credit card bills easily, consider cutting up some of those cards and paying with cash – the ‘pain of paying’ may give you time to reflect on your spending, rein it in, or value it more.[xi]

Maura: We’ve been talking a lot about debt, and now seems like a good time to talk about the importance of savings. Savings allow you to set aside money for important future purchases (like sending your kids to college, buying a new car, or taking that trip to Europe), plus it can provide a cushion for the unexpected. Of course, savings also helps to avoid debt – and when saving, interest is definitely your friend! (Remember that hill – well, the view from the top of this one is lovely, so climb away.) When setting goals like savings, it might help to consider setting a high-low range (rather than a specific number) – the idea is to select a range that is both attainable and challenging, which will help keep you engaged in saving over time.[xii]And, if all of this talk of money and finances is stressing you out, it turns out that a small amount of stress might actually be helpful in some cases– consumers experiencing stress may increase savings to safeguard their future (as well as reallocating spending toward necessities).[xiii]

Avoid debt. (When it comes to debt, interest is your enemy.)
Pay down debt wisely. (All else equal, pay down debts with higher interest rates first.)
Credit is debt.  (Reset your attitude. Cut up extra cards and consider paying in cash to leverage ‘the pain of paying’.)
Set aside savings. (High-low ranges are both attainable and challenging and can keep you engaged)
Have a budget. (Set spending goals by category and track your spending over time.)
When spending, focus on the future (to prioritize and reduce unplanned purchases).
Avoid hot states when making spending decisions. (Cool off, consider future consequences.)
Beware promotional and pricing tactics that encourage spending. (Do your homework. Apps and other technologies may help.)
Savor purchases to enhance enjoyment. (Homework can be fun.)
Leverage “just in time” financial education tied to specific financial behaviors. Include family in the conversation about finances such as credit, debt, savings, and credit scores.

Lisa: Setting aside savings is great advice and connects to my next tip about having a budget. When I was growing up, my parents used to sit at the dining room table and my mom would record the family spending in ledgers using a double-entry book-keeping system.[xiv]Now, this might seem a bit extreme (my dad was a chartered accountant and my mom trained as a book-keeper so I guess this came naturally to them) but it turns out many Americans do not have a budget.[xv]Having a budget is useful because of that saying in business — ‘what’s measured is managed’. For example, if you track your spending, you’re in a position to say ‘whoa, I’ve over-spent on entertainment so far this month’ and you can cut back.[xvi](Technology can help: there are apps to help you track your spending.) Because you know where your money is going, it also gives you an opportunity to trim the fat, find ways to reallocate for unexpected expenses, and so on.

Maura:I love your point about creating a budget! We’ve been talking a lot about debt, budgeting, and savings, but this raises an interesting question: how can we spendour money wisely?

Lisa:  One broad piece of advice that I would give is to think about the future. For example, one of the benefits of savings is that it gets you thinking about the future, which can help you spend money today more wisely by focusing you in on expenses that are more important to you.[xvii]As another example, focusing on concrete shopping goals (like a shopping list) can protect you from unplanned purchases when shopping.[xviii]In other words, have a plan and avoid ‘exploratory shopping’ or browsing.

Maura: Your advice on spending is very much in line with what we know about consumer self-control. Here, a broad piece of advice is to avoid making decisions in a ‘hot state’ or driven by strong emotions. For example, being faced with a tempting sale (e.g., limited time offer) can heighten the hot state, and it may be beneficial to take some time and cool off before deciding whether to purchase or not.[xix]Anyone who knows me can attest to the fact that I am easily tempted by outfits that have a bit of sparkle on them. Seeing a gorgeous sweater with rhinestones has been known to trigger a hot state, but I try not to buy the sweater right away. I wait until I’m in the cool state and make the decision. Often, I don’t go back for the sweater later, but in the special situation when I am in the cool state and still want that sweater, then I will proceed with the purchase. So the old saying “sleep on it” works for me!

Also, thinking about the future consequences of your decision (e.g., interest and penalties if you fail to pay off your credit card balance) may help individuals with low self-control.[xx]However, sometimes thinking about the future can backfire: for example, loyalty programs reward consumers with benefits but can accelerate spending in reaction to the built-in rewards (e.g., frequent flier programs).[xxi]

Lisa, you’ve done some great work on pricing, what tips do you have for consumers making sense of sales promotions?

Lisa:  Marketing can sometimes tempt us to act in ways that do not serve us well as consumers. Sales promotions are just one example, from in-store displays to display ads that seem to follow us online and tempt our self-control. But price promotions are also ubiquitous and very influential. For example, the provision of a higher reference price makes a deal seem more attractive (e.g., 15% off $99.99 rather than simply $84.99), and 9-ending prices may try to signal a deal when it really isn’t.[xxii][xxiii][xxiv]Pricing tactics can be quite seductive so make sure you do your homework (e.g., research prices online, check unit pricing in the grocery store) before making a purchase. (Again, technology can help: there are apps that will compare prices across retailers to find the best deal.[xxv])

Maura:Of course, we also must acknowledge that not all consumers can purchase based on the best unit price, which sometimes involves buying in bulk at a higher total dollar amount.[xxvi]In such a situation, it may be worthwhile to split the cost of a bulk purchase with family or friends. It takes a bit more coordination, but it could be a fun way to shop for deals together.

Lisa:  By the way, doing your homework also applies to other aspects of a purchase, from product attributes to purchase channels. And it also reminds me that, for some purchases, homework can be fun! (Yes, really – though a couple of marketing professors saying that might be biased.) For example, saving for a big desired purchase (like a home makeover renovation or a dream vacation) bakes positive anticipation into the consumption experience and can heighten your enjoyment.[xxvii]In fact, it turns out that certain kinds of purchases – experiential rather than material – can lead to greater happiness.[xxviii]Luckily for me, both of these help justify all the time I’ve spent planning my next vacation trip — once the pandemic is over!

Maura:  And, speaking of homework, it may not be as enjoyable but “just in time” financial education is also a way for consumers to improve their financial literacy tied to specific financial behaviors (e.g., debt and understanding how interest rates work).[xxix][xxx][xxxi]  In addition, for readers who are interested in educational programs, the government has a website ( and there are also various free online classes (e.g., Kahn Academy). And, for readers with children, many high schools offer courses in financial literacy that are worth considering and that may also provide an opportunity for further conversation (and family influence) around personal finances.[xxxii][xxxiii]Many of the approaches we learn in childhood about exercising restraint persist throughout our lives so starting early makes good (financial) sense.[xxxiv]


Links to all the referenced studies:









[viii]An educational video on debt consolidation:






[xiv]A personal example of family influence on financial behavior. See also: