Study Finds That People Who Work Hard For Their Money Are Less Likely To Risk Their Earnings

Excited woman holding cash in her hand
via Shutterstock

Hard work equals hard-earned money – that’s a universally accepted truth. But how does the sweat and time we put into earning our keep influence our financial decision-making? Are those who break their backs to earn their pennies more prone to playing it safe or rolling the dice with their earnings?

A fascinating new study shines a light on this intriguing correlation, challenging long-standing assumptions and broadening our understanding of the dynamics between effort, earnings, and risk tolerance.

The results might surprise you.

Working Hard for Money Decreases Risk Tolerance” is a forthcoming paper in the Journal of Consumer Psychology from lead author Christopher Bechler, an assistant professor of marketing in Notre Dame’s Mendoza College of Business. The co-author of the study is Samina Lutfeali, Szu-chi Huang, and Joshua Morris from Stanford University.

Breaking Stereotypes: The Risk-Aversion Tendencies of Hard Earner

The study finds that the harder people work, the less willing they are to risk those earnings through risky investments and elsewhere.

This new study looks into how people’s hard work to earn money impacts their willingness to take financial risks. The researchers found that people who work hard for their earnings value them more and thus are more fearful of losing them.

This results in these individuals being less likely to take risks, even when those risks could potentially lead to more significant gains.

Interestingly, this finding challenges common assumptions that people who work harder are more willing to take risks. It also broadens our understanding beyond existing research that focuses on unexpected gains or “found money”.

The study also introduces a unique factor of perceived ownership, which is the driving force behind this relationship between hard work and risk aversion. Interestingly, when people earned money in a currency they felt less ownership over (like Bitcoin for non-crypto users), their unwillingness to take risks was reduced.

Unveiling the Unexpected: How Effort Influences Financial Choices

“In this paper, we find that working harder to earn money can make people risk-averse when investing, which can lead to lower overall wealth,” Bechler says in a YouTube video introducing the study. “Intuitively, people tend to think that others who work hard will earn more money and that these types of people are also smarter with money and thus make more prudent investments and get a greater return for their money. Along these same lines, national survey data used by policymakers similarly shows a positive correlation between effortful earning and financial risk-taking, but as many are well aware, correlation does not equal causation.”

Bechler explained how they came to this result in the study: 

“So through a series of carefully controlled randomized trials, we actually showed the opposite result. For each individual, working harder for money – so working harder for the same paycheck – makes them more attached to their earnings and less willing to invest and risk losing some of these earnings, even when this investment leads to positive expected returns. This ‘irrational behavior’ can help to explain why consumers don’t invest and accumulate as much wealth as they could, especially when times are hard.”

Bechler concludes:

“These results also provide support for the development of new interventions and tools that facilitate consumers’ accumulation of overall wealth, such as those that automatically move income directly into investment plans. Ultimately, while it’s paramount that consumers work hard to earn more, policymakers should look to keep consumers’ hard work from undermining their investment decisions.”

A Tale of Two Friends: Anecdotal Evidence of Work Effort and Risk Behavior

Here’s a way to illustrate the findings with two old friends, Mark and Lisa.

Mark and Lisa, college buddies, followed their passion into their respective careers: Mark as a seasoned carpenter, and Lisa as a successful day trader. Both were good at what they did and earned a similar amount each year.

Mark, having spent countless hours mastering his craft, sees each dollar earned as a direct product of his hard work. He’s felt the splinters, endured the aches, and enjoyed the satisfaction of turning raw wood into beautiful furniture. His paycheck, he feels, is hard-earned and thus highly valued. The thought of risking his money in uncertain ventures makes him uneasy. So, he always opts for low-risk investments for his savings, favoring a slow but sure approach to wealth accumulation.

Lisa, on the other hand, is no stranger to risk. In her line of work, high-risk, high-reward trades are part of the daily grind. She’s become comfortable with the uncertainty and volatility. She’s never shied away from putting her earnings back into the market, even when the stakes are high.

According to the research, this difference could stem from the different ways they earn their money. Mark’s labor-intensive job makes him value his earnings more and hence exhibit a lower risk tolerance. In contrast, Lisa’s work environment normalizes risk, making her more comfortable with the idea of potential losses.

B. Carlisle

Contributing editor at Wealth Gang. An entrepreneur at heart, he's passionate about meaningful ways to leverage technology and social media for business opportunities and side hustles.