A new PBS documentary about the psychology of spending translates neuroeconomics into plain English
It turns out money can buy happiness — if you’re gullible enough. And being poor literally affects your IQ.
This isn’t news to the experts studying what makes our brains tick, but it is to the average consumer. It was to John Greco, the writer and producer of a PBS documentary called Thinking Money, premiering in mid-October.
“There were a lot of ah-ha moments, and having a personal interest made a year of researching and reporting much more interesting,” Greco says. “But it’s not the sort of standard PBS television. It’s fun.”
For instance, Greco and his team at Virginia-based Rocket Media Group flew out to wine country to re-enact a 2008 taste-testing experiment that also involved brain scans. (Greco is the guy in the green shirt up top.) The point wasn’t that people don’t know a $10 wine from a $100 wine — that’s been written to death by now.
What the Caltech and Stanford research team found was the brain is happier — the pleasure-creating part lights up — when it thinks it’s getting a pricey wine. Regardless of whether the wine server is lying.
Put another way: Marketers make billions off us because our brains happily buy into lies. We’re wired for immediate satisfaction, even if it hurts us in the long run.
“The only long-term solution for this [brain mechanism] is to make saving more sexy,” Stanford neuroeconomist Baba Shiv tells viewers.
Greco wants to make the science sexy, too. Check out a trailer for the documentary below, then read on for some of the highlights — and what Greco learned making it…
“You have to be your own CFO”
It used to be that Americans would stick with one employer for the long haul and get rewarded for it with a nice pension. Nowadays, job security is rare, and pensions even rarer.
One of the themes of Thinking Money is that managing money keeps getting more complicated — and we keep becoming responsible for more of it. We have to figure out retirement fund options, harass our human resources department for details, and make contributions that employers might not even match.
That’s on top of the day-to-day grind of making money and not spending it all. Nobody has our back anymore.
“The person who opened our eyes to that is Annamaria Lusardi, an international financial literacy expert at George Washington University,” Greco says. “And she gave us the lay of the land for the last several decades and made a great comment: You now have to be your own CFO.”
A chief financial officer is the company executive where the buck stops — and starts. Like any job title, the role varies from business to business. But they’re generally expected to think about money more than anyone else. They manage accounting, plan financial strategy, keep up with new regulations, and hunt for ways to cut costs.
So start thinking like a CFO — and outsource the time-consuming, tedious work of tracking your expenses and spending to an app like PowerWallet. Then you can focus on identifying ways to save and building up an emergency fund to cover 3-6 months’ of expenses.
Trying to do it all yourself is dumb, and just makes you dumber.
Debt drains your brain
Another expert interviewed in Thinking Money is Princeton University psychology professor Eldar Shafir, who tested how financial stress affects our ability to think and perform basic tasks. In other words, how money eats up our mental bandwidth.
He conducted an experiment where volunteers were asked to think about two scenarios while playing simple computer games that measured attention and intelligence. Both involved a car breaking down, but in one scenario repairs cost $150, and in the other, $1,500.
People with higher and lower incomes performed equally well on the $150 repair test, but the lower-income group scored about 13 IQ points lower on the $1,500 repair.
“That’s a big effect, enough to take you from average to borderline deficient,” Shafir says. “It’s worse than having a whole night without sleep.”
That means people who are financially fragile — living paycheck to paycheck — may make poorer financial decisions, even though they aren’t any less intelligent than people with more money.
It’s not just the working poor, either.
“About 30 percent of Americans use payday loans, auto title loans, or pawn shops,” Greco says. “And maybe it’s my middle-class snobbery, but I always thought that was working-class people without a lot of education, and it’s not.”
Instead, he found, pawn shops also see a lot of middle-class business — people bringing in heirlooms jewelry and watches. We’re all susceptible to financial stress, and the bad decision-making that comes with it.
But that’s especially true for the people just coming of age in the Great Recession, who took on record student loan debt before having a chance to learn some of the basics.
What debt psychology means for the next generation
Greco’s team interviewed a lot of people for Thinking Money — not just experts, but also men and women on the street who were very open about their financial mistakes and struggles. He saw a running theme: Millennials don’t trust big banking.
“We were struck by the suspicion of the millennials of Wall Street,” Greco says. “Long term, the market only goes up if you’re properly diversified, but you can’t argue this point with them. They are so traumatized by the job market and seeing Wall Street fail.”
He’s worried they’re going to shortchange themselves in retirement because of a “misinformed sense of the risks.” Although he thinks it’s good they’re paying down debt before even thinking of investing.
“My favorite analogy — and I don’t want to blame the victim here — but I was in the Washington bureau of Dateline on 9/11 and trying to get to the Pentagon. I was flying again within a month and didn’t think twice about it, but a lot of people were scared to,” Greco says.
Experts “extrapolate that more people died in the next couple years on highways than died on 9/11 because they drove instead of flew.”
Greco has two kids of his own — ages 9 and 6. We asked whether he worried about their financial education, too.
“We didn’t get into the whole idea of classroom training, which would be a whole other documentary, but I was very struck by how little Americans know about finances in general,” he says. It did change the way he started teaching his own children, though he and his wife still consider them too young for allowances.
“I’m trying to winnow it down to what they can understand. We make very certain they understand the value of money to the extent they can,” Greco says.
Before filming the documentary, the family started saving in a giant ceramic piggy bank for a trip to Disney World. But they weren’t consistently filling it, which kind of undermined the lesson.
“It started before, but we definitely got better about it after,” Greco says. “The principle is they are now invested in saving for a future goal, not an immediate goal. They have to sacrifice short term for a long term gain.”
That’s something we all need to learn and relearn — if we’re going to have any kind of life in retirement.
Check local listings for Thinking Money on your PBS station.
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Article last modified on December 29, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: How you think about money can make you rich — or broke - AMP.