How Writing a Book About the Psychology of Money Has Changed the Way I See Money – Guest Post by Claudia Hammond May 25 2016
I wasn’t someone who chose a career based on the probability of earning lots of money. If I had wanted to make money, then going into broadcasting, writing and lecturing wasn’t the way to go. Much as I enjoy spending it when I can afford to, the topic of money isn’t something that particularly interested me until I was researching my previous book, Time Warped, where I examined the human perception of time. While I was reading about experiments on people’s conceptions of the future, I was struck by how often money featured in the research. How much would people forfeit in order to receive some cash immediately rather than to wait a month for it? How good were we at predicting how much money we might need in the future? It was then that I started to notice what a complex relationship with money we have.
Mind over Money looks at how money, or the absence of it, changes the way we think, feel and behave. Spending two years scouring global literature in psychology and neuroscience and reading several hundred studies on the topic has certainly changed some of the ways I deal with money. I look more carefully now at how I can spend, save and give to charity to maximize happiness. The research tells us that we get more joy from the anticipation of an experience than we do from the anticipation of owning an object. We can throw our forwards in time mentally to imagine the experience more easily than we can imagine what it’s like to own something. We also look back more fondly on those experiences. So this year when I was offered the chance to go to a friend’s birthday party in France I said yes, when previously I might well have said no, considering it an extravagance to fly to France for one weekend, just for a party. But the research was a good excuse for me to go and it did turn out to be a very memorable weekend.
Studies also tell us that experiences are more enjoyable if they’re divorced from the pain of paying. You don’t want to spend time working out what each hour of fun is costing you. So I didn’t pay for the weekend by credit card, which might have risked me actually paying for it, long after the anticipation and the actual experience were over. Instead I paid for as many things as possible two months beforehand when I booked it, allowing the weekend to feel a little more like a “free” holiday, while I was there.
But I haven’t just used the research to give me an excuse to treat myself. I now think more carefully about when to pay for the extras when buying insurance, for example. I ask myself whether I’m taking out extra hire car insurance because it would be impossible to pay if there was an accident, or because I couldn’t bear the regret of having to pay out, when I could have bought the insurance. Am I insuring against regret or against the risk of a cost I can’t afford to cover? If it’s the latter, I buy it. If it’s not, then I don’t. Yes, one day I might have to pay out, but over time that will probably still come to less than the cost of endless extra premiums.
And in shops and online, whenever I see three comparable items in a row, I’m very wary of the mid-priced one. Often there is a cheap item which is just what you were looking for, and then there’s a high end, glossy version, for two or three times the price. You know you can’t possibly afford it, but still your eyes are drawn to it. So then you see the mid-priced item, and congratulating yourself on resisting the expensive one, you think perhaps that one is rather a good deal. In fact you were never intending spend that much and the cheapest laptop, for example, would have been fine. By showing you what you can’t have, the shop has cleverly raised your expectations and enticed you to spend more than you meant to. Knowing this, I now try hard to ignore the ones I can’t afford and just to concentrate on what is in my price range. I’ll admit that it’s easier said than done.
So if you asked me whether I’ve saved money overall, since writing the book, I’m not sure. I’m still happy working in a field where people don’t earn a fortune, apart from a few exceptions, but what I can say is that I’m now getting better value and more pleasure from what I do have. I use money better.
On a summer evening in 1994, the two members of the band KLF burned £1 million in £50 notes in a barn on the Isle of Jura. They filmed themselves tossing the bills into the fire, and made the story public. The reaction amazed them: this act of nihilism caused a public outpouring of rage. They received death threats. And yet, if the band members had squandered their wealth away on designer clothes and sports cars, would anyone have cared?
We constantly make assumptions about money. We confuse it with morality. We know we need it, and we tend to want more of it, but what we do not always appreciate are the ways it affects our minds, and emotions, and can even skew our perceptions.
Mind Over Money is about what money does to us. In delightfully accessible language, Hammond explores the power of money and shows how psychology and neuroscience are providing us with some extraordinary tools for making better decisions about the way we use money.