Dollars and Sense: How we Misthink Money and How to Spend Smarter
Published Nov. 7, 2017, Harper Collins Publishers, 288 Pages
Reviewed by Chris Wendel
Hardcover $28; softcover $16; e-book edition $15
In a nutshell: All buying decisions are emotional decisions. The new book “Dollars and Sense” explains how our buying choices are impacted by a number of irrational forces
Who’s it for? General audiences and those suffering, wondering where all of their money goes.
Author’s quote: “Money is all about opportunity cost. Every time you buy a $4 cup of coffee, you are giving up $4 that could be going to something else. What we should be asking ourselves all the time is, ‘Is this the best possible way to spend $4?’ But it is hard to think about life this way, especially if you have payments that aren’t made immediately, like credit cards or mortgages or car loans or taxes.”
The New Year brings new promise and change. It’s also the time that many of us look at the way we spend our money. How we relate to money and our corresponding spending behaviors don’t always match up. This odd relationship is discussed at length in the recently released book, “Dollars and Sense.” Bestselling author and behavioral economist Dan Ariely teams up with comedian and writer Jeff Kreisler to explain why spending money can be so painful and why the way we assess purchases is, for the most part, is an irrational practice.
Most of us have some kind of household budget to keep our monthly expenditures in line. To avoid overspending in one category, we’ll justify buying something by shifting money around by borrowing from another category. According to Ariely and Kreisler, this kind of mental accounting tricks us into spending more in the long run. When this occurs rapidly throughout the course of the day, we essentially lose track of what we are doing. There are many forces like this at work that the authors describe through an endless number of colorful and humorous anecdotes.
The authors point out that money has different pain points depending on how it is spent. They give an example of a couple that take almost identical resort vacations. The first couple chooses a prepaid, all-inclusive package. They enjoy their vacation much more than the couple that pays for meals, drinks, and entertainment along the way. Although the couple that prepaid may pay a little more or less for their trip, they had realized a higher level of satisfaction (and had more fun).
As consumers we enjoy spending money on items that have a descriptive story, presented in a setting that presses the right emotional buttons. Think of take-out sushi plopped down on our desk by a co-worker compared to that same sushi being served to you and a group of close friends in a high-end restaurant. The same food has a stronger appeal at the restaurant. This section of the book on the “magic of language and rituals” explains a lot about consumer behavior and can be a useful tool for marketing professionals.
The overall point is that quality and utility complicates simple price comparisons. As much as we believe we are making good choices with our money, our emotions and rationalizations can get the best of us. Fortunately, “Dollars and Sense” provides strategies for navigating through the muddle to improve our financial choices.
Included in the book are thought process practices that help people to avoid the pitfalls laid out in the book’s earlier sections. The simple practice of avoiding spending pain by not using credit cards isn’t new, but Ariely and Kreisler point out that recent technology makes transactions so simple that we forget we are spending money. Some readers may be disappointed that there is no magic formula to solve one’s spending woes. Instead, “Dollars and Sense” provides a solid analysis of how we think of money, which is enough for most to identify and remedy the problem.
Chris Wendel is a business services consultant with Northern Initiatives, a Community Development Financial institution based in Marquette, Mich. Northern Initiatives provides money and know-how to businesses throughout Michigan. Wendel lives and works in Traverse City and can be reached at email@example.com.