CUHK Business School Research Looks at How Earthquake Experiences Affected People's Spending Habits in China
HONG KONG SAR - Media OutReach - 19 August 2021 -China has seen some of the most
destructive earthquakes in history. For example, the devastating 2008
Earthquake in Sichuan province
killed over 69,000 people, left up to 11 million people homeless and caused up to US$20
billion in property damage. The country
sits atop seismically active areas, and it had 118
earthquakes in the past year. This setting
provided the backdrop for a group of researchers to look at whether near-death
experiences, such as major earthquakes, can influence people's spending
patterns. They found that those who experienced major earthquakes early in life
are more likely to "live in the moment" after a traumatic experience.
The study found those who experienced a major earthquake
splashed out more on conspicuous items, including jewellery. (source: iStock)
Jaimie Lien,
Assistant Professor of the Department of Decision Sciences and Managerial
Economics at The Chinese University of Hong Kong (CUHK) Business School and her
collaborators became interested in how major earthquakes
in China affect people's spending preferences.
"Can a life-altering experience
affect our outlook on life and change our spending priorities? When people get
married, have a child, or retire, they often change their values and
lifestyles, which consequently affect how they spend money," she says, "but
what about for life events beyond our own control, such as natural disasters?"
The study Major Earthquakes Experience and Presently-Gratifying
Expenditures was conducted by Prof. Lien, Prof.
Qingqing Peng at Chongqing Technology and Business University and Prof. Jie
Zheng at Tsinghua University. The researchers found that people with direct
experience of major earthquakes tend to spend significantly more on travel and
entertainment, luxury goods and health products after experiencing an
earthquake while spending less on education.
"Chengdu in Sichuan province is
a great example and was a source of inspiration for our study. The city is
known for its laid-back lifestyle and its people are famous for their leisurely
pace, but at the same time, it is also in a region that is prone to recurring
catastrophic earthquakes," Prof. Lien says.
The researchers reached their
findings after examining the major earthquakes that occurred in all of China
from 1920 to 2008 and how it correlated with urban household spending from 2002
to 2009. They compared the spending patterns of families whose head of
household was living in an earthquake-stricken area before a major earthquake
and those that settled or were born in the area only after the major earthquake
had passed.
Living for Today?
The study found that there was no
significant difference in the saving habits between families which lived
through a major earthquake, with those who did not. However, there were
differences in how they allocate their family expenditures. Specifically, families
with earthquake experience spent, as a share of total household expenditure,
0.3 percentage points more on entertainment and entertainment-related products,
such as video cameras and computers. They also spent 0.1 percentage points more
on trips, travels and other entertainment services.
In addition, those who experienced a
major earthquake also splashed out more on clothing, jewellery, watches, which
accounted for almost half a percentage point increase in the total family
expenditure. They also spent about a quarter of a percentage point more on
health-related devices, such as massage chairs, and Chinese health supplements,
such as ginseng, royal jelly and bird's nest.
"Like designer clothing and
jewellery, these types of 'health food' are considered luxurious and expensive,
and are a show of status," Prof. Lien comments. "One of the reasons
why people buy luxurious goods is to make themselves feel better in the
present. After you've had a near-death experience, it's understandable and only
human nature to want to feel alive and happy in the moment."
The more traditional state
newspapers, on the other hand, are well suited to delivering political
directives and policy-related information. Due to their close relationship with
governmental units, these big official rags can provide the most precise policy
direction and industry trends for corporate news. For instance, the study found
that on average, their articles supply 10 percent more news on the general
trends of specific industries and markets than semi-independent business
newspaper articles. Furthermore, big state-owned newspapers tend to increase
their coverage on industry and market news on days when the central government
announces new industrial economic policies.
In addition, families with
earthquake experience also spent significantly more on house cleaning services.
Prof. Lien and her co-authors think that this is another example of how
post-earthquake families tend to value more of their own time and focus more on
improving their current quality of life.
Another major difference in household
expenditure between families which experienced an earthquake and those which
did not, is on education. Families that experienced a major earthquake spent
less on almost all types of education, including children's education away from
home (such as public boarding school), tutoring and training. Specifically, the
magnitude of the difference between spending on educating children away from
the home by families which experienced an earthquake versus those who did not
was as high as 3 percent of total household expenditure. Adult education, which
is typically more focused in the present than educational expenditures on
children, is the only type of education that families with earthquake
experience spent relatively more on.
"Education is an investment in
the future. It is probably not in long-term interest of any type of household,
let alone those who survived an earthquake, to borrow from the future to spend
in the present. It's another example how the altered spending habits of people
who've survived natural disasters like earthquakes could potentially be harmful
in the long-run," Prof. Lien comments.
Are Earthquakes Special?
While many economists and marketing
gurus have focused on investigating how people spend money according to their
long-term interests, this new research study took a different approach by
examining how uncontrollable life events, such as earthquakes, can affect
people's lifestyle choices that may conflict with their long-term interests.
The researchers suggest that future research
could investigate the effect of earthquakes on consumption preferences in
developed countries. It would be interesting to see whether there is a similar
effect in a different demographic setting and whether other types of disasters
would create a similar effect on people's consumption patterns.
"Experiencing an earthquake
first-hand is different from merely knowing about earthquakes. People who have
personally lived through such an event may develop a strong belief that another
may happen again soon. This makes them treasure what they have and seize the
day," Prof. Lien says. "Future studies can investigate if there is
something special about earthquakes in particular that would alter people's
life choices, or whether similar effects also hold for other kinds of events
that are out of our control."
This article was first published in the China
Business Knowledge (CBK) website by CUHK Business School: https://bit.ly/3A4YqlS.
The issuer is solely responsible for the content of this announcement.
About CUHK Business School
CUHK
Business School comprises two schools – Accountancy and Hotel and
Tourism Management – and four departments – Decision Sciences and
Managerial Economics, Finance, Management and Marketing. Established
in Hong Kong in 1963, it is the first business school to offer BBA, MBA and
Executive MBA programmes in the region. Today, CUHK Business School
offers 10 undergraduate programmes and 18
graduate programmes including MBA, EMBA,
Master, MSc, MPhil and Ph.D.
The School currently has more than 4,600 undergraduate and
postgraduate students from 20+ countries/regions.
In
the Financial Times Executive MBA ranking 2020, CUHK EMBA is
ranked 15th in the world. In FT's 2021 Global MBA Ranking,
CUHK MBA is ranked 48th. CUHK Business School
has the largest number of business alumni (40,000+) among universities/business
schools in Hong Kong – many of whom are key business leaders.