Weird ways our brains control our money habits

I'll admit it. I'm a sucker for money psychology studies. And it's not just because I write about money. On a sheer curiosity level, they're fascinating.

But they also serve as a great reminder that money is more about mind than it is about math.

It's interesting to see exactly how our brains work when it comes to habits like spending and saving. And not only is it interesting, it can be helpful too. Understanding how we're wired helps us have a better understanding of our own individual money habits. This is why articles on sneaky marketing tactics are so popular — they're helpful! It helps to know how our subconscious is manipulated to spend more so we can consciously do something about it.

I was impressed when April Dykman wrote about Keith Chen last year. He's the behavioral economist who studies the link between language and savings rates. Basically, Chen's findings were enough for him to assert:

If you speak a language that doesn't distinguish strongly between the present and the future, you save a lot more because the future feels closer. If you speak a language that separates present and future events, the future feels more distant, which makes it harder to do things to care for your future self like save money, exercise, and eat better.”

Obviously, this isn't to say we should all change the languages we speak to get rid of our concept of the future. We've talked about linking our present and future selves before, and it does help to be aware that our language can be yet another barrier in doing this. But it doesn't stop there. I've come across quite a few seemingly “weird” ways our financial habits are affected. Here are three more that I came across recently.

Disorganization leads to impulse spending

Here's one advantage to being a neat freak, I guess.

Researchers from the University of British Columbia and the Cheung Kong Graduate School of Business found that a disorganized environment can lead to impulse spending. According to the Chicago Tribune:

“…in experiments the authors found that people in a cluttered room were more likely to pay higher prices for products, such as a TV or movie tickets, compared with people in an organized room, according to the study, ‘Environmental Disorder Leads to Self-Regulatory Failure.' Researchers predicted that if a person was responsible for his or her own messy environment — rather than ones created by researchers in the experiments — the effect would be even more depleting to their self-control.”

The idea is that organization makes you feel more in control. And when you have more self-control, you're less likely to give in to impulsive shopping decisions. You wouldn't typically think cleanliness and spending affect each other, but your environment can have a subtle impact on your feelings of self-control.

We're more likely to spend dirty money

A study from a couple of years ago found that our spending is also affected by, simply, the way our money looks.

Researchers from the University of Guelph found that we're more likely to spend dirty, crumpled up bills and hold onto our new bills — except in social situations. When we're trying to impress someone, we usually reach for those new, good-looking bills. According to the University:

“In five different studies, the researchers gave subjects new or old bills and asked them to shop and spend. In all the studies, people spent more and took more chances with older worn money ‘Basically, the physical appearance of money matters more than traditionally thought,' said Theodore Noseworthy, a professor in Guelph's Department of Marketing and Consumer Studies”

They go on about how we tend to think of money as symbolic rather than a product itself. But this study shows that we do see some intrinsic value in money, in and of itself. And this is weird because a dirty $10 bill will buy you the same amount as a clean $10 bill. We know that, and, somehow, we still value the clean bill.

We can use this knowledge to our advantage when it comes to paying with cash. You might try to only keep new, crisp bills in your pocket, for example. It might seem impractical and silly, but if these studies are any indication, human behavior often is impractical and silly.

We're less likely to spend larger bills

Similarly, we're less likely to spend larger bills. Researchers Priya Raghubir and Joydeep Srivastava conducted a series of studies that found when people had larger bills, they were less likely to spend it than people with smaller bills or coins.

But there was an interesting twist: When the subjects did decide to spend money, those who made purchases with large bills spent more, overall, than those with small bills.

It's actually been coined “denomination effect.” In their paper, the researchers conclude:

“The results suggest that the denomination effect occurs because large denominations are psychologically less fungible than smaller ones, allowing them to be used as a strategic device to control and regulate spending.”

In an article for Psychology Today, researcher and author Art Markman explains that this happens because of how we associate different values of currency. Simply put, small bills remind us of small purchases — like buying a cup of coffee; large bills are associated with large purchases. Our brains make these associations, and the associations affect our spending.

Markman suggests a pretty simple way to use this information to your advantage:

“If you are the sort of person who tends to blow through a lot of money making lots of small purchases, then you should probably avoid carrying lots of small bills with you…If you are the sort of person who tends to make large purchases on impulse (that is, you are penny wise and pound foolish), then you may want to avoid carrying around large bills… Instead, you should probably carry around a small amount of money in small bills to keep yourself from over-reaching.”

A lot of this seems ridiculous, right? Our brains should think practically and logically. We should understand that five $20 bills are the same as one $100 bill.

But again, money is more about mind than it is about math. This is why, as silly as it might seem, the envelope method works. It's why the method works.

Often, our brains aren't practical. They're weird. Rather than try to deny that fact, it might make more sense to understand it. These studies are always debatable, but a little awareness about human nature can help you work with your habits and develop better ones.

More about...Psychology

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Beth
Beth
6 years ago

Interesting points… I’m always a little suspicious of studies unless I can read the original papers myself. Journalists often confuse correlation and causation and fail to elaborate on the methodology. For instance, many studies involve undergraduate students (they get credit for participating in research) — not exactly representative of the population. I’m also not convinced that disorganization causes impulse spending — rather, I wonder if there’s a common personality trait here. If you’re disciplined about keeping your environment ordered, chances are you’re disciplined with your spending as well? (Correlation, not causation). Or there might be other variables at play. For… Read more »

Joseph L.
Joseph L.
6 years ago
Reply to  Beth

I agree that it bothers me when studies confuse correlation and causation, however: In the study involving organization they weren’t comparing people’s own houses, but rather people in a disorganized environment created by the researchers. I can attest to this effect being true for myself, at least in a way. When my space is disorganized I don’t want to spend time in it. I’d rather go out, which usually equates to spending money. Also, spending money is often used as a way to take control when you feel out of control (which is a common feeling when faced with a… Read more »

Fredrik von Oberhausen
Fredrik von Oberhausen
6 years ago
Reply to  Beth

I fully agree with everything you say Beth. When I ever do read an article written by a journalist in my own field of expertise then there are so many errors and misunderstandings that it has zero value to me. Expanding that to all other fields that I know little to none about and voila nothing left to be trusted. Kristin I must say that I got mesmerized with how you lifted out and separated the brain. In my world the brain is who I am and the rest is just organic by-products that keeps my brain working. Your statement… Read more »

Kristin Wong
Kristin Wong
6 years ago
Reply to  Beth

Totally see where you’re coming from, and I think skepticism is a great thing. That being said, I’ve got to stick up for journalists here. We don’t just pull conclusions out of the air, they’re taken either from interviews with the researchers or from the abstract or conclusion of the paper itself, written by the researchers. I’m not a scientist, so I can’t defend how they choose methodology, but I think it’s important to keep in mind these are studies and the conclusions are theories. Personally, I usually trust that a scientist knows more than I do when it comes… Read more »

Beth
Beth
6 years ago
Reply to  Kristin Wong

Don’t get me wrong, I find studies about the brain really interesting. But my research background always has me wondering “what are the limitations of this study? How does this fit in a larger body of research? Do other researchers agree or disagree with the findings? What further research needs to be done?”

Abstracts and interviews often say very little, unfortunately. When I read a post like this one I think “oh cool! Hadn’t heard that before” and then I want to dig in.

Kristin Wong
Kristin Wong
6 years ago
Reply to  Beth

Oh! And just to touch on the correlation/causation thing re: the organization thing….

The only thing is, according to the methodology, the researchers put the subjects in a room that was either organized or disorganized, and they still spent more when put in a room with a mess they didn’t create.

Beth
Beth
6 years ago
Reply to  Kristin Wong

Yes, but who were the participants? As I mentioned, many studies don’t represent the average population. In fact, participants are often college students who participate for extra credit. I shy away from generalizations for that reason. Are any of us the same people we were in college with the same priorities, spending habits, etc? Would a busy mom of multiple kids who is used to juggling a certain amount of chaos react in the same way as a college student? I’m just saying that one study’s results may or may not apply to our lives. Almost every published paper I’ve… Read more »

Joseph L.
Joseph L.
6 years ago
Reply to  Beth

“Would a busy mom of multiple kids who is used to juggling a certain amount of chaos react in the same way as a college student?”

Wow, excellent point. Good thoughts.

El Nerdo
El Nerdo
6 years ago
Reply to  Beth

Yo, Kristin, that language study is bogus! Just another attempt at resurrecting the Sapir-Whorf hypothesis from its scientific grave. It’s a seductive hypothesis, but it’s false. Furthermore, the study found some correlations but it proves *nothing*. It’s just wishful thinking. Here’s a list of other “scientific” correlations: -US spending on science, space and technology correlates with suicides by hanging, strangulation, and suffocation. NASA, please stop killing people! -CDC data shows that the number of people who drown by falling into a pool correlates with the number of films where Nicolas Cage appears every year. -US per capita consumption of cheese… Read more »

Kristin Wong
Kristin Wong
6 years ago
Reply to  El Nerdo

Fair enough El Nerdo! You know I have mad respect for your opinion. I’m not going to spend time defending the studies, because, well, I’ve already written about them quite a bit, and what you’re saying makes sense to me, too. I think these types of studies are still interesting enough to at least report on and dissect. But your point about a false sense of certainty is also true. I do think it can go both ways, though. Mindlessly agreeing with these studies can be dangerous (but I think people do a pretty good job of questioning them). But… Read more »

El Nerdo
El Nerdo
6 years ago
Reply to  Kristin Wong

Hi Kristin, Sorry I didn’t reply to this yesterday but– Argentina vs. Netherlands! That was a tense game. Anyway, if you’re still reading this– yeah, good debate. I used to be an “intuitive” believer in Sapir-Whorf (“sounds good , must be true”) and then I took a course in neuroscience of language… that cured me alright. I’ll be happy to give credence to linguistic relativism when someone shows me proof of it in a PET scan or at least a well-designed experiment. As for Keith Chen’s paper, I actually downloaded it the last time. It was so full of careless… Read more »

FI Pilgrim
FI Pilgrim
6 years ago

I think the “organized room” trick also works for the organized mind and the organized budget. Having your ducks in a row makes good decision-making MUCH simpler.

Joseph L.
Joseph L.
6 years ago

Haha, some of the researchers names make these sound like fake studies. Joydeep? Theodore Noseworthy?

Anyway, I like these kinds of posts. It’s good food for thought and even if the specifics don’t always apply to me it still makes me think about my attitude towards money and spending.

Anne
Anne
6 years ago

Yes, totally agree here on a person being organized in “all” things possibly already having a better handle on money.

Yes, correlation and causation mixed up constantly in reporting results.

Even Steven
Even Steven
6 years ago

I’m with you on finding those articles interesting. Paying in cash hurts, spending money when you don’t physically see it leave your hand or account(credit card) easy to let it slide. It’s definitely some interesting stuff.

Edward
Edward
6 years ago

I don’t agree with El Nerdo. I’ve travelled a lot and language is embedded with culture in a way that make the two almost inseparable. It is very difficult to learn a language and not be subconsciously influenced by another culture’s belief system. …Unless you somehow learn completely outside of that language’s natural surroundings–e.g., knowing nothing about France, never visiting and French country, not knowing any French people or watching any of their movies, but fluently learning their language in isolation through an audio program. There are certainly different mindesets between different languages. It’s obvious in their expressions, colloquialisms, and… Read more »

El Nerdo
El Nerdo
6 years ago
Reply to  Edward

HI Edward– I’ve traveled too and lived in various countries and I speak 2 languages with native fluency, speak another language okay, read a couple of others, my wife speaks another one I can’t understand, etc.– but personal impressions don’t count as scientific theories, otherwise we’d still be stuck with Ptolemaic astronomy. Furthermore, vast global surveys of social behavior can’t provide theories about the brain. If this was an experiment designed to test Whorf I’d say maybe, but that’s not what it is at all. It’s just wild extrapolation. I’ve never heard of this Skoyles study, I looked it up… Read more »

Jeremy
Jeremy
6 years ago

I have to disagree with the disorganization conclusion. I spend a fair amount of time on managing my financial affairs. Yet, I often have a cluttered desk. Granted, I typically know where everything is on it.

A Frugal Family's Journey
A Frugal Family's Journey
6 years ago

Interesting article and points. It is definitely true that your brain acts differently with different circumstances.

This is exactly why Vegas switch to chips instead of dollars. In fact, they now also allow you to print out a credit slip for slots instead of spitting out coins as they did in the past.

This is because they know that psychologically our brain reacts differently to cash as opposed to chips or a credit slip. Vegas knows this phenomenon and uses it to their advantage.

Komrad
Komrad
6 years ago

Of course psychology affects how you spend, it affects all of your behavior.

I wonder what effect the disappearance of paper money and coins will have on spending habits?

James Salmons
James Salmons
6 years ago
Reply to  Komrad

The disappearance of paper money and coins will have an effect, no doubt. Many years ago I remember a sign (not supposed to be seen by the public) in a department store that stated how much more people spent when they were encouraged to put their purchase on their credit card, a considerable percentage.

I also remember reading somewhere about the increased spending per customer at fast food stores when they started using a card.

Our minds are mysterious things when it comes to money.

Kerry
Kerry
6 years ago

Whenever I put money in birthday/holiday/special occasion/graduation cards I ALWAYS use crisp & clean looking bills. I’ve been doing this for as long as I can remember. Bills with stains, marks, tape, tears, writing, stamps, will not cut it. I’m not joking! One time I had a five dollar bill and someone had doodled a big bushy beard on Abraham Lincoln’s portrait. The pen ink covered his collar and came down to the bottom of the oval. I seriously did not want this in my wallet so I went to the gas station and put five dollars in the tank.… Read more »

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