A way out of your money mess ES T A B L IS H YO UR G O ALS AN D BREAK T HEM DO W N IN T O R E AL, AC HI EVABLE AC T I O N S By PETE LORD bestfinancialfriend.co Is there a way out of our personal money mess? In my journey I’ve learned that as humans we are wired to make stupid decisions about money. Why do we do that? What can we do about it? Firstly, we aren’t good at thinking long-term. Almost everything about our culture encourages and rewards the loss of self-control; from reality TV to Instagram. Self-control issues have been around since we started walking on two legs but it’s getting worse. Temptation is everywhere. Commercial interests want us to do whatever is good for them and do it right now. Stores, apps, websites and social media clamour for our attention, time and money in ways which are good for them but terrible for us. To make matters worse, because there are so many ways to 21 |
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spend, we are even worse when thinking about money in terms of opportunity cost. Secondly, we are reducing the “pain of payment”. Since we invented money, we have been making it easier to spend.
guessed it: when the crackers were given in four bags, people stopped eating at the end of a bag. We continue to use technology to remove the friction to make it easier to spend. Banks love it, retailers love it. But we don’t.
There is a reason we spend less with cash when compared with cards - the pain of payment.
Number three - saving for the future is just hard. We used to see saving in terms of livestock or crops. So, it was easy to see what “the Joneses” were up to and it encouraged us to save.
Cash created friction. We used to: • Exchange a chicken for grain; then • Exchange coin for grain; then • Exchange notes for grain; then • Use cheques for bread; then • Use credit cards for a sandwich; then • Use PayPass for a burger Now we have Afterpay. Buy now pay later. Friction is important because it makes it easier for us to say no. There was a great study in 2011. Some people got one 400g bag of crackers, while others received the same quantity of crackers, but in four separate, 100g bags. You
With technology we no longer see how much we have saved – it’s invisible! But we can see how much we have spent, because unfortunately our spending has becoming extremely visible. While thinking and planning for the future is not something most of us like or do, the positive benefit of social pressure to save more has gone and been replaced by a far worse “demon” - the social pressure to spend. Damn you, Rich Kids of Instagram.