“Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.” – Albert Schweitzer
As men, we are arguably under even more pressure than women to be the provider in a marriage. I’ve even heard from some of my gay friends how much pressure they too exert on themselves to demonstrate their worth in a marriage or relationship. It’s not easy being a guy no matter which way your door swings.
Therefore, it’s a a goal for most of us to be financially solvent, wealthy even. But how much do we really know about the mind/money connection? Have you ever thought that there might be more than meets the eye insofar as how we deal with money? Is there perhaps more we should know about the psychology of spending and how it effects our lives?
In this blog I thought I’d have a stab at some little-known truths about why we feel the way we do when we spend money and how we can incentivize ourselves to hang on to more of it.
The Psychology of Money
One of the most frequent questions financial advisors and psychologists are asked is whether having more money would make us happier. On the surface, it seems like a silly question. Having no money would be terrible, so surely having more of it would be incrementally better until we were just a big goofy mess lying on the floor, right? (Can I get an Amen?!).
But hang on… I’ve met some ridiculously wealthy people, and they certainly didn’t look unhappy, but how much happier are they than the moderately wealthy people I know?
Well, studies about happiness levels have been carried out, and the results may surprise you.
Time magazine was one of the first to release the results (citing a study from Princeton University conducted by economist Angus Deaton and psychologist Daniel Kahneman). And it asked that exact question: “does having more money make us happy?”
Perhaps not surprisingly, the study showed that, earning more money does make you happier, BUT, only up to $75,000 per year.
The lower a person’s annual income falls below that benchmark, the unhappier he or she feels. But no matter how much more than $75,000 people make, they don’t report any greater degree of happiness. (personally, I just don’t think these people are trying hard enough).
Another study about money that revealed surprising results was one done with middle to upper income individuals. Among the questions asked was one enquiring as to whether the respondents would prefer:
- receiving a 10% raise in salary, or
- would they prefer to receive a 30% raise but also have all of their peers receive the same 30% raise?
A startling 83% said they would rather receive a 10% raise than have themselves and everyone else receive a 30% increase in salary. It appears that, at least in middle to upper income respondents, it’s more about status and being elevated above one’s peers than it is acquiring more money. It would appear that it’s more about ‘surpassing the Joneses’ than keeping up with them.
The “Good Old Days”
I hope you’ll afford me the latitude to take you on a quick trip down memory lane to illustrate a point.
‘Money’ used to mean ‘cash’. We carried our wallets around with us and when we wanted to buy something, we had to ensure we had enough money in our wallets to pay for whatever it was we were hoping to purchase.
If we didn’t have enough, we’d have to drive or walk to an ATM and stand in line to draw out the cash (ATM stands for Automated Teller Machine for all my millennial readers). When I was a kid, they didn’t even have ATM’s. If you wanted money, you had to go into an actual bank (Yes, an actual bank) and ask them for money (it’s a wonder we bought anything at all).
After we were sure we had enough cash, we’d have to drive to a store, walk around, deal with pushy sales people, find what we wanted, stand in line to pay for it, watch someone tap in the price of the item we were purchasing and finally, we would witness ourselves handing over our hard earned cash to another person.. *Ouch*
The Good Old “Charge Plate”
During these long-forgotten days in South Africa, and in the rest of the world before Credit Cards existed, you were simply unable to buy something if you couldn’t afford to pay for it (crazy right?).
But then came the Credit Card, the Plastic, the old Charge Plate, the Coke Cutter, the Debt Magnet (I think you get the point). In 1950, the Diners Club issued their credit card in the United States. The ‘Diners Club Credit Card’ was invented by Diners Club founder Frank McNamara as a way to pay restaurant bills.
Diners Club employees were initially sceptical as to whether this whole ‘Spend Now Pay Later’ idea would catch on, but it did… Boy did it catch on!
The credit card changed the way the entire world thought of money. Money was no longer something we earned and saved up until we could afford something, hell no… Money was something we could somehow spend without having earned it and magically pay it back by some means in the future.
Either very little thought was given about how this credit culture would affect us and the world or a great deal of thought was given and it was decided to do it anyway. The adverts told us that the banks had our best interest (pardon the pun) at heart and that credit cards were simply safer and more convenient than carrying cash around. It was to be a lifeline for families who found they always had too much month left at the end of their money.
What credit cards actually did was remove us from the pain of paying. Never before had it been easier to buy things. We didn’t have to see money leaving our sweaty hands, we could simply swipe a little piece of plastic and magic fairies behind the scenes in computer land would take care of the dirty business of moving figures around.
Then of course came the credit card bills… We were given limits to our credit cards (thankfully) but those were soon maxed out. So, what did we do? Did we realize that credit cards were dangerous and that, just like before we had to be responsible with our spending? HELL NO! We took out a SECOND credit card to pay for the 1st one. But instead of just using the 2nd one to pay for the 1st, we maxed out the second one buying more crap we couldn’t afford and took out a 3rd! Oh what a wonderful time to be alive!
You see, very few of the banks listened to or even cared about what the psychologists were saying around what this type of consumption was doing to our brains. Companies like Amazon have made transactions of all types even easier. By offering apps, 1-day (to your door) delivery for Prime members and suggestions about what to buy, you can make and complete a purchase in just a few seconds with as little as 4 taps on your mobile phone. It’s even easier than paying with your credit card and has caused shopping to become somewhat of an addiction for millions.
In the western world, we associate ‘parcels being delivered’ to Christmas or Birthdays. Anything that arrives in a box which necessitates unwrapping, gives us little tingles of happy times gone by when we were young and care free. A time when we were spoiled and made to feel special with gifts from loved ones. Or a jolly fat man who knew all our names would visit us and lavish us with gifts over that magical time of year. Amazon has become the adult version of Santa and we LOVE getting presents (even if we did order them ourselves).
The result of all these cool, quick and easy ways to spend money has seen to it that credit card debts have been steadily increasing the world over. In April of 2019 the revolving credit card debt, in the United States alone, surpassed a staggering $1 Trillion.
Casino’s, not to be left behind, got in on the action too. It used to be that you would have to put cash down at the craps table or quarters into the slot machines. Then they introduced chips and cards to replace carrying cash. Like with the Banks, they told us it was for safety reasons and convenience. And that’s true, it is safer and more convenient, but mostly it was to again simply distance us from the ‘pain of paying’ making it easier for us to part with our cash.
Cruises, Pizzas &Thought Experiments
Consider the following: You want to go on a cruise to Alaska and the entire cruise is going to cost you $1000.
Which do you think makes better financial sense? To pay in-full 3 months before your trip, or to pay on the day your trip ends?
That’s easy. It makes much better sense financially to pay on the day your trip ends, surely. During the 3 months prior to your trip you could invest the money or earn interest on it.
But imagine how you would feel on the second to last day of your trip knowing you are going to have to pay $1000 the next day. It would be exceedingly difficult for you to enjoy your day.
So the closer we are to something we pay for, the less enjoyable it is.
Let’s take another example. You typically pay $20 for a pizza at your favorite restaurant. You usually wolf down the pizza in 20 delicious bites, which is $1 per bite.
Let’s say though, I offer to only charge you 50c per bite, and you only have to pay for the number of bites you take? Effectively half the price!
So, the same size pizza would only cost you $10. But this time, I will stand in front of you and count each bite, making a note in my little book each time you take a chomp.
What do you think would happen in this scenario? If you’re anything like me you do a quick calculation and think “Bring it on! I’m going to eat twice the pizza for the same price!”
But, in reality, in every experiment of this sort, the people ate far less of the pizza than if they had been paying full price. When questioned as to why they ate lass pizza, none of them said it was to save money. They all said that, knowing each individual bite cost them money, made it difficult for them to enjoy the experience.
Scientists have concluded that, the more closely paying for something is associated with the consumption of that thing the more discomfort / pain it causes us.
So, What Does This Teach Us?
The ‘pain of paying’ for something as you consume it, or close to the consumption of it, adds a type of moral tax to the enterprise.
Both the method of payment, and how close it’s associated to the consumption of the item or experience, affects the enjoyment of that item or experience. How much we think about the payment or how much we notice it, affects the way we feel about paying for it.
A clever way to regulate or moderate our spending or consumption is to move the payment as close to the consumption as we can. Instead of shopping online for everything, limit what you shop online for to groceries and household items.
If there is an item of clothing you simply must have, try getting into your car and going shopping for it like we used to do in the old 2000’s. Do your best not to go online browsing for things, you’ll end up buying things you don’t need (and getting them delivered to you.)
Conversely, if you want to encourage saving or investing, you need to automate the process and remove yourself as much as possible from the payment. Ensure that your investments and retirement funds come directly off your salary before you even see it in your bank account.
When you receive an increase at work, do your best to put as much of the percentage increase as you can directly into your investment/savings fund. That way you will be saving more without even feeling that you have increased your contributions.
I personally love the convenience of being able to shop with the click of a button. I love cookies which enable companies to tailor adverts to me. I hear people complaining all the time about how invasive adverts are, but I’d rather have adverts tailored to me than random adverts I don’t care about.
It’s certainly never been easier to get exactly what we want, when we want it. Companies like Amazon, combined with the Smart Phone, have given us a virtual Aladdin’s Lamp. It gives us power over our finances and lives that would have blown our minds just a few years ago. But as Uncle Ben cautioned Peter Parker (that’s a Spider-man reference for my non millennial readers), with great power comes great responsibility.
So, let’s all have some fun but spend responsibly.
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