Dollars and Sense: How We Misthink Money and How to Spend Smarter by Dan ArielyWe Are All Inside The Money Volcano
I was hesitant to read this book, as I was pretty sure it would be boring. I assumed it would be one of those “How to Make a Budget” type of books.
Okay, I was completely wrong—it’s nothing of the kind. I enjoyed reading this book. DOLLARS AND SENSE by Dan Ariely and Jeff Kreisler explains how we think about money, with special emphasis on the frequent ways we think WRONGLY about money. It’s not that we are stupid about money; rather, we don’t think objectively, and are easily manipulated in some areas.
I confess I am a bit of a chump and easily tricked by marketers, so this book was especially helpful to me.
For example, I really like those big, “50% OFF!” signs. I’m not alone, says the author. Bargains make us feel “special and smart. They make us believe we’re finding value where others haven’t.”
I completely understand what the authors are saying. Deep down, I know I’m being manipulated by the “Savings” signs, but I still like the feeling of getting a great deal.
The authors discuss the “pain” of buying something. Not surprisingly, if there is little pain, we tend to “spend more freely and enjoy consuming things more.” That’s a big factor in using credit cards—they separate the moment of consuming from the pain of paying. “Credit cards capitalize on our desire to avoid the pain of paying.”
One of the favorite sections is the discussion of “Fairness.” We tend to value things more highly if we know a lot of effort has gone into the product or service. If it seems like the seller is gouging us, we won’t buy their product—even when it is in our best interest to do so.
The later part of the book provides suggestions to help us. First off, realize that some forces in our environment WANT us to make poor decisions. A bad decision by us means more money for them: “We fight a financial environment that actively tries to tempt us to make bad financial decisions. We live in a world where outside forces constantly want something from us.”
I thought this one suggestion was the best advice in the book: “From time to time, let’s stop and question our long-term habits.” Maybe getting that expense coffee every day is not really a good idea.
Here’s an interesting idea that helps us save more money: We can also create a “Ulysses Contract.” (Named after the classic story of Ulysses tying himself up to prevent responding to the call of the Sirens.) A Ulysses contract is a process we setup to “create barriers against future temptation. We give ourselves no choice.” The idea is, have some sort of automatic savings process, to try to fend off future temptations. The authors cite a study showing that savings increased 81% under an automatic savings scheme.
So all in all, I found DOLLARS AND SENSE to be a fun, insightful read. It’s definitely not one of those “Make a Budget and Stick to it” type of financial planning books. The authors write clearly and includes a ton of examples, often citing scientific studies. I liked the funny illustrations by Matt Trower.
Advance Review Copy courtesy of the publisher.
HOW TO MANAGE MONEY - Dan Ariely
We think of money as numbers, values, and amounts, but when it comes down to it, when we actually use our money, we engage our hearts more than our heads. Emotions play a powerful role in shaping our financial behavior, often making us our own worst enemies as we try to save, access value, and spend responsibly.
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Dollars and Sense is an enjoyable, non-technical overview of some of the ways we make bad money decisions and a few ways we can get better. The authors seem to share my worry that companies, especially technology, financial and other businesses, are getting better and better at manipulating our behaviors so that they can profit from our mistakes. This is clearly good advice, especially for important financial decision that happen rarely and for smaller decisions that happen frequently, and whose effects can add up. On the other hand, there are cases where we can be very good at making decisions intuitively : such as when have had a lot of experience and have gotten good feedback and coaching see Make any Decision. After a while, we learn that the best places to buy milk and juice are not necessarily going to be the best places for meat and fish. We can build expertise in higher-stakes decisions like purchasing a home helping friends and family as they go through the process. I would have liked another chapter on the decisions we make well and how to expand that expertise.
Blending humor and behavioral economics, the New York Times bestselling author of Predictably Irrational delves into the truly illogical world of personal finance to help people better understand why they make bad financial decisions, and gives them the knowledge they need to make better ones. Why does paying for things often feel like it causes physical pain? Why does it cost you money to act as your own real estate agent? In Dollars and Sense , world renowned economist Dan Ariely answers these intriguing questions and many more as he explains how our irrational behavior often interferes with our best intentions when it comes to managing our finances. Partnering with financial comedian and writer Jeff Kreisler, Ariely takes us deep inside our minds to expose the hidden motivations that are secretly driving our choices about money.