Dollars And Sense: How We Misthink Money And How To Spend Smarter
Author: Dan Ariely & Jeff Kreisler
Publisher: HarperCollins, personal money
We humans like to believe that we’re a rational lot and, credit where it’s due, most of us at least make some attempt to be sensible in our thinking. Sometimes.
One notable exception to this is our dealings with money. When it comes to money, often times our financial thinking can make as much sense as seafood on pizza.
The reason for this is because humans, sadly, aren’t inherently reasonable in the slightest; rather, we’re primarily driven by how we feel at any given moment.
Being driven by our emotions has proved to be useful for humankind. Our ancestors who stopped to consider that the beige lump lurking behind the rocks probably wasn’t a dangerous predator were long out-lived by those who were clever enough to choose running away over reasoning.
While today’s world is a much safer place, our minds have been slow to catch up, and so we retain many of our primitive instincts, which are often more of a hindrance than a help as we navigate our way through the Age of Consumerism.
Thankfully, Dan Ariely (professor of psychology at Duke University) and Jeff Kreisler (Princeton-trained lawyer-cum-comedian) have written an extremely helpful book that highlights many of the ways in which we are misguided in thinking about money, and what we can do to redress the balance.
Dollars And Sense is all at once informative, thought-provoking, and hugely entertaining. Journeying through the pages, there are a number of opportunities for the reader to cringe and chuckle as they recognise their own folly when doling out their hard earned.
Why is it that we’re so terrible at handling money sensibly? According to the authors, it’s due to our inability to accurately assess the value of our purchases, and that we’re almost always affected by context, timing, and our subjective view of what’s fair.
Giving some historical examples of how humans inaccurately assess value, the authors lay bare just how bad we can be at knowing the worth of everything from a cup of coffee to whole boroughs. “The Native Americans sold Manhattan for some beads and guilders. How could they have known how to value something – property – that they had never heard of, and for which they had no context?”
Poor Native Americans, we might think, assured in our belief that we’d never be so gullible. However, anyone who’s ever walked into any popular coffee chain will likely spend hundreds of dollars each year on a drink that we could enjoy at home for a fraction of the cost.
Or how about elections? As the writers observe, “The cost to rent an apartment in some major cities can climb to more than $4,000 per month and we don’t seem to blink. The price of gas rises 15 cents and it can swing a national election.”
Much of our problems stem from the fact that we tend to take the easier path when making decisions.
If we spot a pen we like that’s selling for RM16 and a helpful sales assistant informs us that the same pen is on sale for RM1 at a store 10 minutes away, we’re likely to make the trip to pocket the RM15 saving. On the other hand, if we are about to buy a RM500 suit and we’re told that the same suit is on sale for RM485 at a store 10 minutes away, we’ll happily shell out the extra RM15 for the more expensive item.
Dollars And Sense is crammed with everyday pitfalls to which we regularly succumb, and the authors kindly provide some salve for the reader’s bruised ego by revealing their own financial gaffes – it’s true that even the experts fall for the same conveniences and temptations as the rest of us. As we’re reminded, “A wise man knows himself to be a fool, but a foolish man opens his wallet and removes all doubt”.
The book helpfully offers a number of ways in which we can make better decisions with our money. It all begins with understanding the various psychological tricks that lead us to needlessly part with our cash. We’re advised that money is a difficult and abstract concept, but that doesn’t mean we’re helpless. “So long as we understand incentives and tools and our own psychology, we can fight back.”
Dollars And Sense is a refreshing and timely reminder that, while money isn’t everything, it does play a significant role in our lives and, as a finite resource, understanding how we can use it to serve our best interests will save us a great deal of financial pain in the long run.