We’ve all experienced it: We go to the supermarket hungry and our stomach starts shopping for us. Or we go to the mall to buy a T-shirt and leave with matching pants and shoes we don’t really need. So why is it that sometimes our best intentions to be fiscally responsible go up in smoke? Scientists who look at why we spend money have this to say.
Jekyll and Hyde
Behavioral economists, Professor Dan Ariely, of Duke University and MIT, calls human nature “predictably irrational”. Identifying a constant struggle between our emotional self and our rational self, Professor Ariely, identifies a simple reason for why our emotional side so often convinces us to spend money when we shouldn’t. “There is one way to be rational,” he says, “[but] many ways to be irrational.” This gives our emotions the unfair advantages of leading us astray.
The Plastic Magic Wand
In his paper, The Realities of Spending, Greg Davies of the Financial Services Forum identifies credit cards as the culprits behind our bad spending habits. We no longer have to count bills out of our wallets; instead, we swipe a card and we’re done. The psychological pain we would normally feel at losing a chunk of our cash is replaced with the immediate gratification of owning something we want but can’t afford.
Behavioral economists, Meir Statman, of Santa Clara University observes that saving money can often be the culprit causing us to actually spend money when we shouldn’t. Each time we see an irresistible discount in a store, restaurant or travel agency, we experience two emotions. On the one hand there’s the painful realization that we could miss out on a great deal. On the other, lies the bliss of cashing in on something we couldn’t otherwise afford. And so we no longer make our purchasing decision based on cost but on apparent saving.
A University of Michigan study conducted by Rick, Cyder, and Loewenstein, looked at the brain activity of shoppers. Those with higher activity levels in the area of the brain called the Insula, where less likely to spend money when they shouldn’t. The Insula became stimulated upon feeling an unpleasant reaction. And yet, interestingly, years later, such people tended to feel regret for what they gave up; while, at the other extreme, those with low Insula activity had spent their way into financial trouble.
The Money Trap
Professor of psychology at Harvard University, Daniel Gilbert, analyzes the reasons why making more money fails to make people happier. Discovering that people who work longer hours, at high-stress, high-risk jobs tend to spend money more freely, Professor Gilbert identifies a vicious cycle. The loss of leisure time and the freedom that comes with a stress-free existence leads ambitious working people to seek compensation in spending money. In this way, hard work becomes the means of earning the income needed to make up for so much hard work. And, in this circular race, happiness remains always out of reach.
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