Would you like to be $100 richer? It’s a no brainer. If you stroll down the sidewalk and lock eyes with Ben Franklin, chances are, you’re feeling pretty good about the walk you took. But is $100 always $100?
In one of my favorite blog posts to date, due largely to the comments section, I outlined the fact that, at least for me, $100 is a BIG DEAL. I could do a lot with $100. It’s half our grocery budget for the month. It’s definitely all I would need for gas for a few months. It’s definitely more than I make teaching or tutoring for an hour. Or two or three.
So I was more than a little surprised when I stumbled across this tidbit. According to Pogue’s Basics: Money, a book I flipped through in between tutoring sessions at the library, most people will gladly drive across town to save $100 on a $200 purchase. But those same people couldn’t be bothered to drive across town to spend $100 less on a big ticket purchase, like appliances or a new car. Huh. Now I know there’s much ado about percents in personal finance, but $100 is still $100, isn’t it?
Now, I can do the mental gymnastics to justify the thinking. Sort of. Maybe I don’t want to haggle for a car twice. Maybe the latter scenario seems like more effort or more time. But maybe humans are just really odd when it comes to numbers and sense.
Take Daniel Kahneman and his Loss Aversion Theory. Basically, humanoids are more likely to panic over the possibility of losing money than we are to get excited about gaining more. In short, most people are much more likely to be compelled to act when it comes to avoiding a small service fee than they are to seek out equally small savings or earnings.
Not convinced? Think about how many finance books you’ve flipped through that contain a tidbit that calls for the death of ATM use due to service fees imposed on the user. A $3 fee on a $100 withdrawal! That’s absurd. That’s three whole dollars of my money I just lost. And for what? Yet, I’ve not seen too many posts extolling the virtues of couponing when it adds an extra $3 to your bottom line. Same measly money, but it makes for a different impact.
As someone who was so risk averse, I torpedoed my earliest chances at compound interest by keeping a five-figure Roth IRA in a bank CD, I get it. Our brains do weird things. And people want to pass it off as emotional investing (or emotional un-investing in my case), but I’m not sure it’s that simple. Fear is definitely part of it. But sometimes, it seems that we really don’t understand numbers as well as we think we do.
Like the people who conveniently ignore the final 9 at the pump when they fill up their tanks. True story. I have a friend who has operated motor vehicles with a license for well over a decade, and it only just dawned on her what that 9/10ths of a penny actually means. (Hint: Your gas is about a penny more per gallon than you think). And the same is true for Mr. P, who still, despite years of my tutelage, will tell me that he bought an insect house for our garden for $9, when the sticker price very clearly states $9.99. Obi-Wan Kenobi, I am not.
Most of us have money blindspots. Chalk them up to emotion, psychology, or your 6th-grade math teacher, they exist. What’s most important is that we think long and hard about what money means. Because if you and I know these money mind games, you had better people the people who profit off them are well aware, too.
So Tell Me…Are there any other money mind games that you see people fall for regularly? Would you drive across town to save $100 no matter what?