At home, you clip coupons and haggle over a dime, but on holiday, money is no object.You would not think of buying a Dh1,000 jacket... unless it has been marked down three times. Nor would you spring for a Dh50 hamburger... but you would pay Dh100 for a buffet.
It does not take an Einstein to figure out you suffer from money relativity, in which your value system expands and contracts.
"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 dirhams on football tickets, opera tickets, holidays or a big-screen TV'." Our money contradictions, each as individual as snowflakes, run the gamut from the benign ("no taxi, thanks") to the ridiculous ("how much do you want for that taxi?").
In its harmless form, money relativity is nothing more than a mind game we play to convince ourselves that we are adhering to some code or rational set of rules that govern how, why and what we buy.
At its most dangerous, money relativity can serve as a rationalisation for irresponsible impulses, from binge buying to the more addictive behaviours that plague gamblers and shopaholics.
Let us explore this mindset and find out how you can become master of your money universe.
Fast balls, Curve balls
Money has not escaped the notice of advertisers and marketers, whose job is to study our spending patterns, 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 happiness.
For this reason, Prelec says, we tend 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 organised a silent auction for tickets to a sold-out football 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: those with cards 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 to their advantage.
Relative bliss
Where does our money relativity come from?
"It has everything to do with your childhood," says Mellan. "My husband grew up quite poor and certainly they never took taxis. It's partly that. I don't think there is a very good reason for it beyond childhood habits. It does defy logic." But that does not mean you are fated to spend like an Enron executive on holiday. Every day, Mellan helps clients overcome harmful spending behaviours.
"First of all, I have people keep 'emotional spending' diaries. They write down everything they spend and how they feel about it," she says. "That really gives you this kind of information.They might spend Dh25 on a taxi and feel that this is outrageous, a waste. Or may be they would spend a lot of money on something else and it would never occur to them that it is extravagant." Next, she helps them recognise when money relativity is warping their judgement.
"I try to get people conscious of what they tend to overspend on, where they go into what I call a trance or automatic pilot, and then get them to figure out alternative behaviours to doing that." She also teaches them about behavioural finance, or what some call mental accounting, which places goods into categories much like a money diet: OK to buy, not OK to buy. Once they see their vulnerabilities, she has clients write down their short, medium and long-term goals.That tends to bring some of the pain back into paying.
Mellan says it can be an uphill battle to curb your spending in a consumer culture where wants and needs are considered interchangeable.
How they make us pay
Travel: The travel industry has convinced us to prepay for holiday packages. The reason? We do not want to worry about money while trying to relax, and we certainly do not want to return to a pile of bills. In fact, in another study, Prelec found that two-thirds of respondents said they would rather prepay for a Dh4,800 holiday than make six monthly payments of Dh800 either before or after their trips, even though they would lose the interest on the prepaid money.
Health clubs: Prelec's studies show that health club members would rather pay a flat rate than a per-visit fee. After all, if you paid Dh2,000 per month and your workout buddy paid Dh20 each visit for 10 visits a month, who will enjoy the club more? It is no wonder that most health clubs charge a flat fee and it is prepaid.
Dining: When we are dining out, we do not want choice; that is much too close to that painful paying moment. We want to eat, relax and not fret about the bill. That is why cagey Europeans long ago adopted the "prix fix" menu, a few selected full-course meals at a fixed price. The supersized American version is the buffet. "Americans don't like add-ons," says Mellan. "They're always interested in getting something for nothing, the buffets and sm?rgasbords where you can eat anything you want."
Technology: From computers to the Bose Wave radio, technology companies have embraced bundling as a way to simplify our choices and remove us from the breakout of what each component costs. You are not likely to quibble about the cost of your Internet Explorer when it is included in the bundled software or service plan.
© Emirates Today 2006
