Wolf Money(book recommendation)

 

“Dollars and Sense” How We Misthink Money and How to Spend Smarter by Dan Ariely and Jeff Kreisler is a very interesting book that investigate our psychology on how we think about money and how we spend them. Many decisions taken by marketer of a product took into consideration how a human mind react in a certain predictable way. For e.g you are likely to spend less money if you use cash to pay for every purchase. Human psychology of seeing money, sometime large amount of it disappearing before our very eyes caused emotional pain which lead us to spending less or be more conservative with our money.

One local example (nothing to do with the book) I can think off is in the area of sports betting illegally or legally. It is quite common to hear the punters at coffeeshop calling and placing a bet with their bookie “Man Utd give half ball $2000” without a flinch of an eye. Unfortunately Man Utd loss, the punter was also quick to tell the bookie at the end of the match “ I will settle with you at the end of the month”. Literally there was no cash transacted at the time of the bet. I have not seen anyone going to Singapore Pools handing over that $2000 cold hard cash to bet on a Man Utd win. The lack of visual effect of cash exchanging hand gave the punter the courage to bet more. Exchanging casino chips had the same effect.

Human being tend to lie to themselves and are less truthful towards our money. A person with a sizeable collection of watches would give an excuse to buy another watch to celebrate an artificial milestone for e.g I got my first car, in celebration of the new car, I should buy an expensive watch to go with the car. The human mind has a tendency to mental account and to segregate or apportioned money for special purposes. In financial industry we call it “SPAC-“Special Purpose Acquisition Company” or “an escrow account”. Can’t afford that overseas vacation with plenty of credit cards bills unpaid, no problem since the money had been earmarked for travelling, just go ahead. The money earmarked had been detached from the mothership saving account which make the spending on vacation less painful. The best part of the vacation is the optional tour which cost another 200 bucks per person which one gladly paid given the vacation had cost you $5000, that $400 extra for optional tour for you and wife really doesn’t move the needle in all grand scheme of things. That make paying for the optional tour more palatable. There were too many bad spending habits which the author hit it on the nail. 

Readers will be able to learn about the notion of “Anchor price”, “Confirmation bias”  and “Sunk Cost”which ultimately determined how much we paid for a service or product. The author highlighted an experiment where a group of tourists were told the 100 bucks tour which they paid for was inferior to that of a 50 bucks tour. All of them sign up for the 50 bucks tour without the refund condition. They were asked to choose which tour they will be going since both tours happens at the same time. Shockingly more than half opt to attend the more expensive tour given the fact it is less superior than 50 bucks tour. The takeaway of the experiment most tourists will choose the inferior tour due to “Sunk Cost” mentality given it cost the same 150 in total whichever one decide. The experiment is very true in the context of stock market. Most investors choose to hold on to inferior stocks vs cutting losses on them.

Preloaded gift cards like Starbucks card, Amazon card etc had less emotional attachment to your heart/purse string as they are “fully paid for”. Morning coffee at a coffeeshop cost $1.5 turned into a Starbucks 7 bucks latte which is “free” given it is paid for with money in the gift card. The author had brilliantly written some wonderful example on occasion where we cheat ourself “accountingly”. In summary, consumers are likely to spend more using electronic means of payment as compare to physical money. Credit card or the recent paranormal growth in bnpl(buy now pay later) allow us to enjoy the future spending now,YOLO feeling is great without the need to make good of the money spent on the spot. This book goes to Lone Wolf highly recommended list. By reading the book, readers can gain money wisdom instantly. I enjoy the book very much, learn things about money which I never thought off.. The main message coming out of the book don’t be penny wise, pound foolish. 

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