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.
Final Thoughts
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?
Anchor pricing is another big one! Just because the MSRP is a certain price doesn’t mean it’s worth that price!
Oh, yes. That’s a really good one. And it works the other way, too, right? I always try to set my anchors high (doctor visits, etc.), so then I’m pleasantly surprised.
Oooh, interesting! I’ve definitely driven an extra 20 minutes or so to save money, for sure. It just has to be worth the extra gas and time I spent, of course. I HATE when people price things with “9” at the end. To me, it makes it seem like a much bigger sum of money. When I see all the figures, my mind immediately goes, “Nope.” Just say it’s $10, yo!
I think people fall into two camps: our camp…and Mr P’s. It makes me bananas. Whenever he talks about the cost of anything, I mentally round up. Sometimes, it makes for a really nice surprise when he’s actually already rounded. Then, I feel like we really got a bargain 😉
I am a self-confessed numbers geek, but it still amazes me the way some products are priced. I’ve seen, for example, a six-pack of mozzarella sticks at Arby’s priced higher per stick than a 4-pack. Same with the per-ounce price of peanut butter in a large vs. smaller container. I’m glad many grocery stores now have a sticker on the shelf showing the per-ounce price of most items, but it doesn’t seem to catch everyone’s eyes. I’ve seen brand name items sell for less than the generic/store brand, yet people probably paid more for the store brand thinking they were saving money.
I love reading the teeny tiny print on price tags at stores. There’s so much information that you just have to know what look for!
Loss aversion and scarcity principle works on all of us. TOday, I finally opened an online savings account, what took me so long??? I have no idea, but instead of earning 50 cents per year of interest i will earn $50. Yep, took me years to figure that one out!!! Go figure!!
Congrats, Karen! That’s huge. I felt this really weird loyalty to our local bank, so it took me a really long time to open up an online savings with Discover. So glad I finally did!
I’ve definitely driven further to get a good deal and it’s totally worth it!
I would agree, Lance! I try to be reasonable with what my time is worth. But $100 in that scenario? You had better believe I am driving for that!
I would definitely drive across town to save $100. $5, not so much. The money mind games I’ve seen are like the ones Jover mentioned….different per-item prices in different quantities and different brands. It always drives me crazy that they do that. And the 9 at the end of prices is just silly.
I agree, Gary! And if you throw coupons into the mix, it really complicates things.
My husband is the math person in our household. My daughter passed algebra with a solid A. Me? I passed high school algebra by the skin of my teeth. Both the husband and daughter made A’s in highschool and college maths yet can’t do fractions or percentages in their heads. Both have trouble doing simple addition and subtraction in their heads. So I shouldn’t be surprised that they stumble over rounding numbers UP, lol! Invariably they will take the first number in the sequence and ignore the rest. So $9.99 is $9 and $999.99 is $900…..you get the picture. My son-in-law and I marvel over these two textbook math geniuses who can’t seem to fathom simple financial math. Needless to say, the two who barely passed algebra (son-in-law barely passed either) take care of the finances in our two households, lol!
That is exactly what my husband does! And I will be standing there, looking at the same sticker price, thinking, “But there are more numbers!” That’s so funny how your households are split into textbook math and financial math.
The percentage vs. flat dollar issue has fascinated me as well. I wrote about it at one point and found a whole bunch of experiments all finding that we think in terms of percentages when dealing with whether it is worth extra time to save money. Some of the experiments even had people making decisions back to back. They would say that they would not travel across town to save $500 on a car and then a minute later say that they would travel across town to save $50 on a suit. Even having the two scenarios laid out in front of them at the same time didn’t lead people to think straight!
I feel like percentages can be so misleading. And I think you just confirmed that, Matt!
For me it is as much a time thing as anything else. If I have to spend hours to save the $100 I’m much less likely to do it. I sometimes buy things on Amazon that are cheaper at the store in our town because the savings is not significant compared to the time, effort and expense of going to the store.
That totally makes sense to me! You have to know what your time is worth and adjust accordingly.