Spending too
much money? Tempted by sales? These money psychology hacks’ can help.
After every big
event like Christmas, Easter, a wedding, big anniversary, etc., there is a post-event
sales period. Kids going back to school for example, your kids getting married
or even study fees has left your wallet gasping for breath, while everything
else just keeps getting more expensive.
If you haven't
already seen your spending go up, the possibility is looming – and you probably
have some concerns about spending your money wisely. Furthermore, shopping can
be a harrowing experience, and our attitudes towards money are tied up in all
kinds of feelings.
Based on
psychology, here are three tips to improve the way you spend your hard-earned
cash these days.
Before the
purchase: Patience is your friend.
One of the
amazing features of the human mind is that we can mentally time travel: we can
imagine what the future is going to feel like. Scientists call this 'affective
forecasting'.
Thinking about
a future trip – imagining the warm sun, the sand between your toes, finding
yourself smiling – is an example of such mental time travel.
However, it
turns out that we're not very good at effective forecasting. We get wrong not
only the emotions we will experience, but also their intensity and duration.
Lottery winners are a classic example. Contrary to expectations, many are not
happy, or not happy for long.
More
importantly, you can derive happiness from just anticipating future
experiences. For example, one study measured the happiness of 974 people going
on a trip compared with 556 people not going on a trip. As you might expect,
the holiday-makers were relatively happier but only before the trip.
So, how can we
take advantage of our capacity to mentally time travel?
Tip 1: Pay
now, consume later.
These days, fueled
by the rise of 'buy now, pay later' options (we all know PayFlex, Pay-Just-No,
right?) we get to consume what we want
immediately. However, this instant gratification deprives us of a key source of
happiness: anticipation. Side-stepping the anticipation while saving for
something big, is the price we pay for instant gratification.
A better
strategy is to commit to buy something... and then wait a while before actually
consuming it.
At the point of
purchase: Notice that you're paying
An
inevitability of every purchase is spending money. This represents a cost, both
in terms of the monetary value as well as the opportunity to buy other things.
Costs are a
form of loss, and we don't like losing things. For that reason, it
psychologically hurts to spend money. Scientists call this the 'pain of
paying'.
According to
one theory of shopping, we decide to buy after making a mental calculation: is
the anticipated pleasure of consuming higher than the anticipated pain of
buying?
This calculus
is even represented in the brain. For example, one study looking at people's
brains with MRI while they purchased food found neural activity in areas linked
to higher-order, affective pain processing, which correlated with how high the
price was.
How did you pay
for your last meal? Did you have to dig into your wallet or purse trying to
extract the appropriate combination of notes and coins? Maybe you simply pulled
out a plastic card and tapped it on the reader? Or perhaps you absentmindedly
touched your smartphone to the machine.
It turns out
that your method of payment changes how much pain you feel. In one study,
researchers asked some university employees if they would like to buy a mug at
a discounted price. Half were only allowed to pay in cash, whereas the other
half had to use a debit or credit card. Those who paid in cash self-reported
more pain of paying.
So, how can you
use this to your advantage?
Tip 2: Ramp
up the pain.
If you're
worried about overspending, ramp up the pain of paying. You can do this by
using cash or receiving a notification each time money leaves your account.
After the
purchase: Stop chasing rainbows
A fundamental
feature of human beings is that we are adaptive-we easily get used to the new
normal. This applies to our purchases, too. Scientists call it 'hedonic
adaptation": over time, consumption of the same thing brings decreasing
happiness.
Remember the
day you got your smartphone? You may have felt joy as you caressed the smooth
aluminium back and watched light glint off the unblemished glass. Now look at
your phone. What happened to the joy?
It's normal to
experience hedonic adaptation. However, one problem is that we don't anticipate
it.
Remember
affective forecasting? Since satisfaction is a function of expectations
relative to performance, when we fail to adjust our expectations in light of
the inevitable hedonic adaptation, we end up dissatisfied.
The second
problem with hedonic adaptation is that the obvious solution appears to be
buying something new. Maybe you need a new smartphone to replace your slightly
scratched-up old one?
If this is your
thinking, you've just hopped onto the hedonic treadmill. Now the only way to
maintain your happiness is to spend more and more money to get better and
better versions of everything.
So, how can you
get off this treadmill?
Tip 3: Buy
experiences, not things.
It turns out
that people end up happier when they buy experiences rather than things.
For example, a
study that tracked how older adults spent their money found that only one
category of spending was related to happiness: leisure purchases, such as going
on trips, seeing a movie at the cinema, and cheering at sporting events.
One reason for
this is that we adapt to purchases of experiences more slowly than purchases of
material things.
So, the next
time you're tossing up between buying tickets to a festival or getting the
latest gadget, pick up your scratched-up smartphone and pre-purchase some
festival tickets for you and your friends.