Photo: Flickr / 21TonGiant
New research has shown a link between speaking a second language and our ability to make wiser financial choices, Tom Jacobs reports in the Pacific Standard.Psychologists from the University of Chicago found that when people speak in a language other than their native tongue, it helps eliminate our tendency toward loss aversion – getting too caught up in the ‘here and now’ to make choices that could profit us further down the road.
“Even when people fully comprehend the meaning of taboo words, reprimands, expressions of love, and advertising slogans, they react to them less emotionally in a foreign language,” they wrote in Psychological Science. “This reduction in emotional response might … allow people to rely more on analytic processes when they make decisions.”
The study involved dozens of University of Chicago students who grew up speaking one language and learned a second in junior high and high school.
In one experiment, they found English speakers were far more likely to take a bet on a long-term gain (in this case, a simple coin toss) when they were presented with a scenario in Spanish.
Now, replace the coin toss with the choice to invest in a 401(k) and you start to see the study’s significance.
Loss aversion is one of the main reasons psychologists believe more Americans aren’t taking advantage of investment opportunities early in their career. Rather than tucking away earnings into long-term investment plans for their future, we get too caught up over what we’ll lose by investing rather than seeing the potential to gain further down the road.