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At home, you clip coupons and haggle over a dime,
but on vacation, money is no object. You wouldn't think of buying
a $200 jacket ... unless it has been marked down three times from
$1,200. Nor would you spring for a $6 hamburger ... but you'll jump
at the chance to pay $9.99 for an all-you-can-eat buffet.
It doesn't take an Einstein to figure out you suffer
from money relativity, in which your value system expands and contracts
like the universe, depending on where you are and how you feel about
what you're buying.
"My husband is self-aware in this way,"
says psychotherapist and money coach Olivia Mellan, author of "Overcoming
Overspending." "He'll say, 'It's so hard for me to
spend money on a taxi, but I think nothing of spending thousands
of dollars on hockey tickets, opera tickets, vacations or a big-screen
TV.'"
As Mr. Spock from "Star Trek" might say,
it's quite illogical, Jim. Our idiosyncratic money contradictions,
each as individual as snowflakes, run the gamut from the benign
(No taxi, thanks.) to the ridiculous (How much you want for that
taxi?).
In its harmless form, money relativity is nothing more than an eccentric mind game we play to convince ourselves that we're adhering to some personal code or rational set of rules that govern how, why and what we buy.
At its most dangerous, money relativity can serve as a rationalization for a variety of financially irresponsible impulses, from binge buying and overindulging to the more addictive behaviors that plague problem gamblers and shopaholics.
Let's explore this mind-set and find out how you can
become master of your money universe.
Fast balls, curve balls
Money relativity has not escaped the notice of advertisers and marketing
folks whose job it is to study the patterns of our spending, especially
the inconsistencies, in order to discover ever-better ways to entice
us into choosing Brand X over Brand Y.
Drazen Prelec, professor of management science at the Massachusetts Institute of Technology's Sloan School of Management, says we create our own internal money rules, such as "I never take taxis" or "I never buy dessert," to keep our spending within bounds. As a result, when we do spend, we incur a "moral tax" that cuts both ways; on the one hand, the pain of paying helps keep us solvent, on the other, it saps some of the joy out of buying a little happy.
For this reason, Prelec says, we Americans tend to prefer to distance ourselves emotionally from the actual act of parting with our money. The most obvious example of this is the popularity of paying by credit card.
In a study, Prelec organized a silent auction for
tickets to a sold-out Boston Celtics game. Half the bidders were
told they could only pay with cash, the other half that they could
only pay with credit card. The result: The credit card bidders bid
more than twice as much as the cash bidders.
"Credit cards separate us from the pain of spending," says Mellan. "On average, people who use credit cards spend a third more. It's a more unconscious way to pay. It doesn't feel like real money."
Other industries have learned how to use our money
relativity to their advantages.
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Here are a few examples: |
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