Two Stories That Will Change the Way You Think About Money

February 25, 2016

The way I think about money & spending has been impacted by numerous thinkers, ideas, research, as well as (largely) my own personal experiences. Here are two ideas that have challenged me over the years: 


The Omniscient $100

Many years ago, when TEDTalks were only just beginning to be mentioned at dinner parties and were only available by slow release on iTunes, I watched one by Dan Gilbert. He is a Harvard psychologist and “happiness expert”; the key argument in all of his work, I suppose, is that our brains systematically misjudge what will make us happy.

What I remembered for years and years was a story that swum around my brain and poked at my own perception of money:


Let’s say you want to buy a car stereo and the dealer near your house sells it for $200, but if you go across town, you can buy it for $100. Most people would make the drive to save the $100. What’s a little drive to save ½ price?

Now, let’s say that you want to buy a car with a stereo and the dealer near your house sells it for $31,000, but if you go across town, you can get the car for $30,900. Would you drive to get it?

Most people say, no way! I’m not going to haul across town just to save $100 on a car!

But here’s the thing: the $100 doesn’t know where it comes from. The $100 that you use to buy your groceries doesn’t say, proudly, “I’m the money that was saved on the car stereo!”or, sheepishly, “I’m the dumb money saved on the car...” If the drive across town is worth $100, it’s worth $100.

 

Of course, this is not how our brains naturally work; we are not wholly rational beings and our brains are predisposed to compare according to the past, to scale, etc.

All I know is that this story (and there are numerous examples in his talk) stuck with me and began to challenge the way I perceived my own car/stereo spending. Here is the whole video (including Q & A; the talk is the standard 10 minutes), if you want to watch it later:



The Honest & Efficient Locksmith

Here’s another story, this time from one of my faves, Chris Guillebeau. He wrote a book The $100 Startup, that was incredibly helpful and motivational when I was beginning dignify. This story was from a chapter on how to price products or services in a way that balances the value an item provides with the kinds of psychological barriers mentioned above.

 

“After nearing the end of a five-hour drive from Boise to Salt Lake City, I stopped off at a Starbucks about twenty minutes away from the bookstore I was speaking at that evening. On the way inside, I grabbed something from the trunk and left the keys inside. Nice move, Chris. It was even worse because I didn’t realize my mistake until I had finished my latte and email session an hour later, shortly before I was due to arrive at the bookstore. I was mad at myself for being so stupid, but I had to think quickly. Using a combination of technology, I located the number of a local locksmith and quickly rang him up.

“Uh, can you please come as soon as possible?” He agreed to be as fast as he could. Much to my surprise, the locksmith pulled up in a van just three minutes later. Impressive, right? Then he got out his tools and approached the passenger door. In less than ten seconds, he had the door open, allowing me to retrieve my keys from the trunk and get on with my life.

“How much do I owe you?” I asked. Perhaps it’s because I don’t own a car and the last time I paid a locksmith was ten years ago, or maybe I’m just cheap, but for whatever reason I expected him to ask for something like $20. Instead, he said, “That will be $50, please.”

I hadn’t discussed the price with him before he came out and was in no position to negotiate, so I gave him the cash and thanked him. But something was unsettling about the transaction, and I tried to figure out what it was.

I was mad at myself for locking my keys in the car—it was obviously no one’s fault but my own—but I also felt that $50 was too much to pay for such a brief service. As I drove away, I realized that I secretly wanted him to take longer in getting to me, even though that would have delayed me further. I wanted him to struggle with unlocking my car as part of a major effort, even though that made no sense whatsoever.

The locksmith met my need and provided a quick, comprehensive solution to my problem. I was unhappy about our exchange for no good reason.“

 

How much do you judge a product or service on its value to you and how much is on camparison with other ways to spend your money? When or where are you most irrational with your spending choices? Share your comments below!

 


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